Mainstreaming just transition finance: lessons from emerging best practice
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The transition to a green economy is increasingly dependent on private finance, particularly given the fiscal constraints to delivering on the transition to net zero emissions faced by sources of public finance. However, the integration of just transition principles into private financial flows remains limited, narrow in scope and far from mainstream. As private capital plays a growing role in funding climate mitigation and adaptation, it is essential that this financing reflects local sustainable economic and social development needs, while safeguarding principles of equity, inclusion and justice. Progress is currently constrained by practical barriers, notably limited awareness and understanding of how to operationalise just transition principles and a lack of well-developed business cases to advance just transition objectives.
This policy brief synthesises the findings of the Just Transition Finance Lab’s research series on ‘Emerging Best Practice for Just Transition Finance’ and identifies a critical gap: the lack of a robust, quantifiable business case for just transition finance. It highlights the need for policy leadership to set clear baselines and expectations for market practice. The authors review current approaches, provide examples of good practice and outline ongoing challenges given recent headwinds and structural issues facing the just transition. They make recommendations for policymakers and financial actors to progress just transition integration within private finance, drawing primarily on insights from engagement with asset managers.
Summary
- As private finance becomes an increasingly important part of the landscape for climate change mitigation and adaptation, integrating just transition considerations into these flows is becoming more urgent.
- However, practice on just transition within private finance largely remains clustered around narrow interpretations of the concept and providing baseline, compliance-based social protections.
- The levers and opportunities for meaningful action on just transition vary by investor and asset class, with unlisted markets and development finance institutions offering comparatively greater investor agency and scope for direct influence.
- A significant barrier to incorporating just transition into private
finance is the absence of a robust business case. Current framings
of associated risks and opportunities remain largely conceptual,
and investors lack the practical tools, evidence and methodologies
required to integrate them into standard decision-making processes. - Policy leadership from government is essential to drive progress,
particularly through establishing clear baselines for social protection
and long-term value creation, and by encouraging businesses and
investors to consider the social opportunities and risks associated with
their transition activities. - The authors recommend three actions for policymakers and investors to advance integration of just transition into private finance: (i) strengthen the evidence base and awareness of the business case for just transition action; (ii) embed just transition within existing financial regulation and reporting, for example, through consideration of the intersection of environmental and social risks; (iii) support governments to operationalise the commitments to just transition encoded within their Nationally Determined Contributions, by setting a clear baseline for acceptable practice on just transition across sectors and geographies.
DOI: 10.21953/researchonline.lse.ac.uk.00138973
The four reports in the Emerging Best Practice for Just Transition Finance series are:
- Mobilising bonds for the just transition: an exploratory assessment methodology of thematic sovereign bonds (Scheer et al., 2025)
- Multilateral development banks’ use of green, social and sustainability (GSS) bonds: lessons for private investors (Tyson et al., 2025)
- Mapping the scale and scope of just transition finance in private credit and equity funds (Chanda and Tyson, 2026)
- Stewarding a just transition: frontiers of practice in listed equities (Chanda, 2026)
