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Risks of social backlash to low carbon transition if energy utility companies don't address its human and economic impact

21st December 2020

RLAM and Friends Provident Foundation call for energy utility companies to put in place formal Just Transition strategies, to address the human and economic impact of the transition towards a low carbon economy by November 2021.

Carlota Garcia-Manas, senior responsible investment analyst at Royal London Asset Management (RLAM) commented:

“There are real risks of social backlash to the transition, which may deter it from happening or decelerate its pace. Energy companies need to address the social impact that the transition carries.

“The UK’s 6th Carbon Budget, published in December 2020, establishes that in the long term, the transition will bring many benefits to UK households including better insulated homes, cars becoming cheaper to drive, cleaner air, quieter streets, more access to green spaces and more opportunities for improvement of health. However in the short term, the transition could lead to job losses and further increases in electricity costs before they begin to fall, with an expected addition of over £100 by 2030 to the average annual energy bill for a typical household.

“We encourage energy companies to bring workers, communities and consumers with them on the journey to Net Zero in a way that addresses the trade-offs and maximises its benefits, embedding fairness in their approach. They should have a plan to address the fact that the increased digitisation and shift away from certain technologies already requires new talent and reskilling of the sector’s workforce. Also, they should bear in mind that inadequate pricing mechanisms may affect the most vulnerable customers, increasing fuel poverty.”

RLAM and Friends Provident have engaged with the top seven utilities companies (Centrica, E.ON, EDF, National Grid, RWE, SSE and Scottish Power) about this in the past six months and are now asking for formal commitments to be put in place by November 2021. Prompted by RLAM’s and Friends Provident’s engagement, last month SSE were the first to announce a formal Just Transition strategy. RLAM and Friends Provident have now requested the other leading companies in the sector to also develop strategies that address their expectations ahead of the UNFCCC COP26 meeting in November 2021.

Colin Baines, investment engagement manager at Friends Provident Foundation commented:

“It is imperative that companies and investors understand and act on the risk of ‘stranded people’ and ‘stranded communities’, in terms of skills and economic utility, as well as the financial risk of ‘stranded assets’.

“We have therefore written to the UK’s largest energy utilities asking them to follow SSE’s lead and have shared a set of ‘expectations’ for inclusion in Just Transition strategies. These include mitigating the negative impacts of the transition away from fossil fuels for workers and communities but also embracing the transition’s opportunities. A just transition is a necessity for a rapid and resilient net-zero transition, and we hope to see more strategies published as we approach COP26.”