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By Kimberly StokesCorporate Engagement Strategist, Calvert Research and Management

Washington -- As the shift to a low-carbon economy continues, the impacts to society will involve more than greenhouse gas (GHG) emissions. Investors and others are becoming increasingly aware of the need for a "Just Transition" that integrates climate change and human capital management to create the necessary environment for action.

The concept of Just Transition acknowledges that the move from traditional fossil fuels to renewable energy requires consideration of the impact on vulnerable workers and other affected communities when addressing the challenge of stranded assets and ensuring that the substantial public and private investments in low-carbon strategies and technologies create an inclusive, sustainable economy. Government action and public policy will play a major role in this, but there is increasing recognition that investors and corporations have an essential part to play.

Workers affected by decarbonization will need to be retained, retrained, redeployed and/or compensated. Those who have traditionally enjoyed secure, union jobs may find that those opportunities are now automated or replaced by jobs with less attractive financial opportunities. Local communities and environments will likewise experience varying impacts. If these societal impacts and the Net Zero transition are instead pitted against each other, moving forward on GHG emission reduction will be more difficult.

Engagement Example: Xcel Energy

Calvert engages with companies on Just Transition in a number of ways, both on our own and as a part of investor coalitions. One example of Calvert's engagement is our work with Xcel Energy, which we undertake as a part of our work with Climate Action 100+ (CA100+), an investor-led coalition that asks corporate GHG emitters to take necessary action on climate change.

Xcel was the first CA100+ utility sector company to commit to a net zero target. Moreover, Xcel has significant operations in Colorado, which is the first state in the U.S. to have Just Transition legislation.

We are working directly with Xcel to strengthen its net zero commitments, associated targets, and interim steps. In addition, we are asking the company to align climate lobbying policy and human capital management policies, including Just Transition, to support the achievement of net-zero targets.

The Calvert-led investor group met with Xcel in Q3 2021 to review CA100+ benchmarking results, explore opportunities for improvement, and discuss questions around Scope 3 emissions. We asked that Xcel consider including its natural gas utility operations in its net-zero commitment. Xcel has since announced its ambition to achieve net-zero greenhouse gas emissions from its natural gas business by 2050 - becoming the first integrated U.S. utility company to commit to an enterprisewide net-zero target.

Bottom line: A just transition that considers worker and community impacts as the result of the movement to a low-carbon future is essential for the transition to succeed. If this is not managed effectively, efforts may slow or be stopped altogether.