Green Economy Media, February edition, 2025

Reactions to COP29 were mixed. While the agreement to triple climate finance to $300-billionper year by 2035 was a welcome step forward, the conference failed to find agreement on thejust transition work programme.

BY GITA MAHARAJ*

A just transition centres on shifting to a low-carbon economyin a way that supports affected workers, communities andindustries, to ensure both environmental sustainabilityand social equity. The private sector is increasingly beingcalled upon to play a greater role in funding the transitionand aligning climate action with the upholding of labour andhuman rights, decent work and social dialogue. This is in responseto fiscal constraints faced by both developed and developing nations,and a growing realisation that non-governmental stakeholdersneed to play a more meaningful part in the transition — to achievejustice and avoid the continuation of injustice.The big question, of course, is the "how" and "what" the privatesector can do to deliver just transition strategies. At ImpactInstitute, we believe that part of the challenge of defining thislies in the structures and standards the private sector uses tomeasure and benchmark their social impact footprint.

Time for a social impact measure overhaul

‍ESG reporting, which is subscribed to by 96% of the world's top250 companies, is increasingly being questioned for itseffectiveness and accuracy in measuring a corporation's true impacton sustainability. It is a limited framework with an over-reliance onpublic disclosures that the investment community uses to assess acompany's vulnerability to risks caused either by or to the company.

Simplicity is complicated

‍While the idea of clear and simple metrics in three key areas —GHG emissions, living wage across the value chain and impact onbiodiversity — is a good start, we contend that simpler metrics won'tbring about the desired sustainability shifts if they do not providea more holistic view, or if they can't be implemented successfully.The matter is considerably more complex — particularly aroundsocial impact metrics.

First, breaking the comparison barrier around social impactmetrics is complicated. The living wage metric cannot be usedwithout agreement of the methodology for calculating real livingwage — for example, which indicators are in the basket and whatis the size of an "average" family? Implementation of a livingwage cannot be the responsibility of producers and employersalone. As the Global Living Wage Coalition argues, "Each player in the supply chain needs to support a living wage in their owncapacity, including standard systems, retailers, brands, suppliercompanies, unions and other labour groups, industry organisations,governments, civil society and academia."Further, regions have different strategic contexts and socialimpact focus areas vary. In Africa, for example, social issuesinclude food insecurity, lack of sanitation and clean water, highunemployment rates, gender-based violence and extreme poverty.How would a living wage metric — uniformly applied - recognise acompany's contribution to solving these localised problems?

Would the living wage metric promote equitable pay?

‍Even if a living wage calculation methodology is agreed, howwould this information be used in the entrenched practice ofremuneration benchmarking in the formal sector? Would havingliving wage data promote more equitable distribution of profitsto employees versus management? It's clear that the practice ofreward and incentives needs to be reconsidered because it hasdisproportionately benefited CEOs over employees for decades:according to the Economic Research Institute, CEO take-home payincreased by 1200% between 1978 and 2019, compared to averageemployee pay, which grew by a marginal 13.7% over the same period.

It's evident that the private sector needs to embrace a freshapproach to sustainability reporting. As the British Academynotes in their Policy & Practice for Purposeful Business report,current reporting metrics are focused on the financial bottomline and valuations are predominantly restricted to future financialearnings. Nowhere is a company required to account for the totalcosts that it incurs or is likely to incur in avoiding or rectifyingthe problems it inflicts on society or the planet. This has led toan early-adopter penalty, where companies who are accountingfor the cost of sustainability — and therefore whose profit islower — are penalised by the market compared to companiesthat don't account for sustainability costs and have higher profits.

Evaluation of non-financial performance is challenging andrequires a broader range of techniques than has been the case todate, including qualitative approaches. There's no silver bullet andsolving for the 'S' in ESG is a collective effort which must give riseto meaningful benchmarks on a company's universal social impactfootprint and not just single-dimension, stand-alone metrics.