Transforming Banks for a Just Transition

Over the past year Finance Innovation Lab has sat on the Advisory Group of the Banking on a Just Transition project led by LSE’s Grantham Research Institute. Today the Institute launches its landmark report: Financing climate action with positive social impact: How banking can support a just transition in the UK. Our Head of Intrapreneurship, Lydia Hascott, shares some reflections on what it will take for banks to finance a decarbonised world.

The ultimate purpose of finance is to enable a thriving economy and society within a flourishing ecology. The resounding call to build back better through the economic recovery from COVID-19 and the ongoing and ever more urgent calls to transition to a zero-carbon economy reveal what thriving means to so many – a world that is sustainable, just and resilient. Banks have a significant role to play in both the transition to this kind of world and in sustainably maintaining it when we get there. This requires deep transformation of core strategy, operations and culture which must be driven by bankers from within, as well as through pressure from the outside.

A systemic perspective is required

A systemic perspective sees social and environmental factors as inherently connected and inseparable. We cannot talk about financing a transition without it being a just transition – connecting climate action and social inclusion. A transition that manages to avoid stranded assets, yet results in stranded workers, businesses, citizens and communities will threaten banks’ license to operate, weaken the markets they operate in and fail to fulfil their purpose of enabling a thriving world. The just transition is not a separate, additional issue for banks to respond to, but an evolution of the climate agenda which provides a “systemic and whole economy approach to sustainability”, aiming to maximise the social benefits and mitigate the social risks of the transition to zero-carbon.

COVID-19 has also shown us how globally interdependent we all are. UK banks invest in the economies abroad that are most vulnerable to the impacts of climate change and the transition. Plus, they finance UK businesses with complex value chains and stakeholder networks that extend across the world. A systemic perspective reveals the direct linkage between banks and the global impacts of climate change on people and planet. This is much greater than matters of risk exposure, but reveals the irrefutable responsibility banks have to ensure a just transition both in the UK and abroad.

A tool for greater ambition and faster progress

We know the climate goals of both governments and financial institutions are currently insufficient to limit global temperature increase to 1.5 degrees, and progress toward the UK’s 2050 target is already too slow. It is critical that the social dimensions of the transition are not used as a tool for greenwashing – with protecting jobs and livelihoods used to justify further delays to climate action. Rather, ensuring every individual and community has the opportunity to thrive in a decarbonised world is essential for accelerating the pace and scale of transition and will increase the possibility of achieving more ambitious, science-based climate targets before it’s too late.

The role of bank insiders 

The Banking on a Just Transition report launched today details how banks can and should embed just transition principles at the heart of their climate action plans and make these the vehicle by which they deliver core business into the future. The report provides eight clear recommendations for banks to implement. These include embedding the just transition in: senior leadership mandates, organisational purpose, corporate strategy, customer relationships, products & services, policy engagement, cross-sector partnerships, and reporting and disclosure.

Over the past two years we have been building a community of mainstream finance professionals seeking to do just this. We call them systemic intrapreneurs. Through this work, particularly with those focused on influencing the climate agenda, we have learned that the barriers to implementing these recommendations are human as much as they are operational. Banks are complex human systems. Putting the just transition at the heart of core business requires navigating internal agendas and power dynamics, building buy-in, developing trusted relationships, influencing mindsets and developing new skills and capabilities just as much as it requires finding the right data, methodologies and frameworks to design effective strategies.

Moving forward we will continue to support purpose-aligned bankers to build their internal influence and overcome these barriers in service of the ultimate purpose of banking – to enable a thriving world. We know that these internal changes at banks also require, and can be accelerated by, pressure from the outside. We also need major pushes from government, regulators, investors, customers and civil society organisations to enable action by committed employees. The Lab’s systemic approach seeks to align and catalyse action from inside and outside financial institutions towards the common goal of a just transition to a zero-carbon economy. The Grantham Research Institute’s report provides a galvanising foundation for this work.


You can read the full report from the Grantham Research Institute here. To learn more about our work supporting bankers to transform their institutions from within contact our Head of Intrapreneurship at lydia@financeinnovationlab.org.