UK banks making progress on just transition integration but must do more on community risk, investors warn

The UK’s biggest banks are starting to take the social impacts of climate change seriously but are still falling short on protecting the communities and regions most exposed to the transition to net zero, according to a new investor report.

A four-year engagement programme led by Royal London Asset Management, alongside Border to Coast Pensions Partnership and Friends Provident Foundation, observed improvements at Barclays, HSBC, Lloyds Banking Group and NatWest in how they consider inclusion and social risk within their climate strategies, an area long treated as a blind spot in banking.

However, the report warns that no bank yet meets investor expectations on regional transition planning or community protection, leaving workers, households and local economies exposed as decarbonisation accelerates and high-carbon industries are phased out.

The findings are set out in the Just Transition in Banking: Engagement Outcomes Report which assesses the banks against 15 investor expectations covering products, high-emitting sectors and  place-based impacts.

Carlota Garcia-Manas, Head of Climate Transition and Engagement at Royal London Asset Management, said:

“Banks play an important role in the transition to net zero. Our engagement shows that when investors are clear and persistent, banks can and do move. The progress we’ve seen proves that a just transition is no longer a ‘nice to have’, it’s increasingly recognised as fundamental to long-term value and financial stability.

“But this journey is far from complete. Regional impacts, community resilience and protection for vulnerable customers remain underdeveloped. If banks want their transition plans to be credible, they must show not just how fast they can decarbonise, but how fairly.”

Progress - but no clear leader

The report finds that:

• All four banks now acknowledge the importance of a just transition, compared with almost no reference at the start of the engagement in 2022
• The strongest progress has been made in sustainable and transition finance, including green, social and sustainability-linked products
• Some banks are beginning to embed social considerations into sector strategies and client assessments
• However, none of the banks assessed emerged as a clear leader across all expectations.

Regional blind spots remain

The weakest area across the sector is place-based transition planning. Investors found no evidence that the banks had a comprehensive strategy for identifying regions at high risk of economic disruption from decarbonisation, such as areas reliant on carbon-intensive industries.

The report warns that without targeted regional approaches, there remains a risk that banks create ‘stranded communities’, undermining both public trust and long-term economic resilience.

Colin Baines, Stewardship Manager at Border to Coast Pensions Partnership, said:

“The mitigation of social and place-based risks and a joined-up approach to social and climate opportunities is key to achieving a resilient and effective transition.

“We commenced our engagement with the UK banks to encourage global sector leadership in the integration of just transition and are pleased to report emerging best practice. However, gaps remain, especially regarding place-based risk. For example, none of the banks disclosed a process for identifying regions and regional banking with high exposure to transition risk and risk mitigation.

“We encourage the banks to continue the momentum we have seen to comprehensively integrate just transition into net zero strategy.”

Charlie Crossley, Investment Engagement Manager at Friends Provident Foundation, said:

“Banks are part of the economic system we work to change. Engaging with them, asking questions and keeping a just transition on their agenda is important because their decisions shape how quickly – and how fairly – the real economy can decarbonise. We’ve seen progress from each of the banks. But we're acutely aware that much more is needed to ensure banks are supporting customers, workers and communities to transition."

Why it matters

The investor group argues that integrating social considerations into climate action is not just an ethical issue, but a financial one. Poorly managed transitions increase credit risk, political backlash and reputational damage, while inclusive approaches may help accelerate decarbonisation and help support unlocking-term value creation.

The report concludes with a clear message to banks, regulators and policymakers: a fast transition that leaves people behind is not a successful one.

- Ends -

About Border to Coast Pensions Partnership

Based in Leeds, Border to Coast is the largest LGPS (Local Government Pension Scheme) pool in the UK. It is owned by 11 Local Government Pension Schemes funds (‘Partner Funds’) which collectively represent nearly 3,000 employers and over 1.1 million members.  The Partner Funds are Bedfordshire, Cumbria, Durham, East Riding, Lincolnshire, North Yorkshire, South Yorkshire, Surrey, Teesside, Tyne and Wear and Warwickshire.  

The Partner Funds have c.£65.3bn in investments, of which Border to Coast is directly responsible for the management or oversight of £55.4bn (as of 31 March 2025).  

Border to Coast Pensions Partnership Ltd is authorised and regulated by the Financial Conduct Authority. Registered in England Number: 10795539 and Registered Office: 5th Floor, Toronto Square, Toronto Street, Leeds, LS1 2HJ. 

www.bordertocoast.org.uk   

About Friends Provident Foundation

Friends Provident Foundation is an independent charity that makes grants and uses its endowment towards a fair and sustainable economic system that serves people and planet. We connect, fund, support and invest in new thinking to shape a future economy that works for all. Since 2004, we’ve pioneered the creation of fair economy for a better world. We’re a catalyst for wider change, making an impact through continuous experimentation and shared learning. We invest in great social enterprises and use our money in line with our values.

www.friendsprovidentfoundation.org

The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.