Responsible Business Conduct for a Just Transition

1. Introduction

Abstract

This chapter sets out the rationale, scope and methodology of the report. It situates the low-carbon transition in its broader economic, environmental, and geopolitical context, noting both the opportunities it creates for innovation, job creation and energy security, and the risks it poses if poorly managed.

1.1. Background

Economic, security and environmental factors, as well as climate change and rising energy demand (OECD/IEA, 2021[2]; OECD, 2024[3]) are driving a transition towards alternative sources of energy and a low-carbon economy. This transition offers opportunities for economic growth and innovation, while strengthening energy security through diversified and resilient supply systems (World Economic Forum, 2023[4]; US Department of Energy, n.d.[5]). The transition also presents the opportunity to create higher-paying, skilled jobs in sectors such as manufacturing, mining, construction and agriculture (UNFCCC, 2020[6]). At the same time, an abrupt transition or one not managed properly could increase risks to workers, communities, and consumers, and have destabilising effects on the financial system and economic growth (Arnold et al., 2023[7]; 2023[8]; FSB, 2023[9]; NGFS, 2023[10]; European Systemic Risk Board, 2021[11]; Finansinspektionen, 2022[12]).

Globally transition activities are expected to affect workers through job creation, restructuring, redeployment, and job loss. In this respect the ILO estimates that 78 million workers will lose their jobs by 2030 as a result of the transition while 103 million new jobs will be created (ILO, 2022[13]). Whilst this represents a growth in jobs globally, such jobs will not necessarily be in the same regions, be of the same quality, nor require the same skills.1

Transition activities also stand to have considerable impact on the land, health, security, livelihoods and cultural heritage of communities due to activities related to the extraction of resources and the development of new infrastructure or closure of existing facilities. Indigenous Peoples may be particularly impacted; in one study, across a sample size of over 5 000 energy and transition mineral projects it is estimated that 54% of projects are located on or nearby Indigenous peoples’ lands (Owen, Kemp and Lechner, 2023[14]). Furthermore, half of the world’s future wind capacity and two‑thirds of its solar capacity are expected to be developed in countries with limited civic freedoms with attendant risks for environmental and human rights defenders (Swedwatch, 2025[15]).

The transition can also have notable implications for consumers by impacting affordability and access to essential services particularly concerning basic goods and energy. For example, in modelling scenarios the European Central Bank noted that transition policies may result in higher costs for raw materials, metals (cobalt, lithium, nickel), and agricultural commodities feeding through into consumer goods prices (Tertre, 2023[16]). Such impacts can disproportionately impact low-income groups. Coal in particular is relied upon as an energy source for the populace in many emerging economies, with Emerging Market and Developing Economies (EMDEs) accounting for over 80% of global coal consumption (IEA, 2022[17]). That said, the rapidly declining cost of renewable energy (e.g. solar PV prices have fallen by over 90% in the past decade and wind by around 70%) is making alternative sources of energy increasingly competitive, often cheaper than new coal plants (IRENA, 2024[18]). This trend is also opening pathways for distributed solutions such as mini-grids and pay-as-you-go solar systems, which are expanding access for off-grid households in regions where centralised grids have struggled to reach (IRENA, 2024[18]).

While governments will be responsible for establishing the policy and regulatory framework and incentives to deliver on environmental and social commitments, businesses play a key role in developing and scaling technologies, skills and business models that support a just transition, while managing risks of harmful impacts associated with their transition strategies.

Managing social impacts associated with the transition may present specific opportunities and challenges for individual companies operating in affected sectors and supply chains. This includes the energy sector but also financial services, manufacturing, transport, construction, garment, and agriculture. For example, it may necessitate that companies balance de‑carbonisation efforts with efforts to mitigate risks to workers, communities, and consumers. This requires navigating the relationships between economic, social, and environmental priorities in day-to-day operations and strategic planning, in order to progress in multiple areas simultaneously. For companies, this will entail taking an integrated approach to transition planning drawing on a broad range of factors, expertise and stakeholders, engaging with workers, community members, civil society organisations and consumers, and balancing potentially competing interests and considerations. As the transition happens over time, business will be weighing these considerations, while pursuing continuous adaptation and improvement, and transforming their business models by moving into and away from specific activities.

The scale of this transformation will span entire sectors, supply chains, and regions, meaning that businesses, beyond their individual actions, will need to engage with a broader set of stakeholders to achieve their goals. This includes understanding the company’s role in relation to the collective impacts of industry transformation and pursuing collaborative approaches with other industry actors, investors and government. The entry into new industries also creates space to explore new operating models, which can maximise benefits for companies, communities and natural ecosystems. For example, shared benefit systems such as community energy co‑operatives, where companies partner with local communities to co‑own renewable energy infrastructure, can distribute financial returns, reduce emissions, and strengthen social license to operate.

Navigating these unique considerations can result in well-designed transition strategies that create synergies between environmental, social and economic objectives, for instance through nature‑based solutions or adaptation measures that protect workers and communities, enhance economic activity and strengthen environmental resilience (ILO/IUCN/UNEP, 2024[19]).

1.2. Scope and aim

This report is primarily intended for business practitioners, as a resource to inform the development of business policies and practices to manage potential social impacts associated with the transition. Whilst this framework is not a guidance document on environmental due diligence or management, it recognises that strong environmental practices and implementation of credible transition plans are key starting points for contributing to a just transition.

The report outlines current practice and challenges facing business in this context. It identifies recommendations from the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (“OECD Guidelines”), Due Diligence Guidance for Responsible Business Conduct, and other OECD RBC standards2 that may be particularly relevant for addressing the potential social impacts associated with the transition. It provides examples of key actions for how businesses can implement these recommendations drawing on existing practices.3

The OECD Guidelines recognise that “[a]diverse environmental impacts are often closely interlinked with other matters covered by the Guidelines [...]. Furthermore, carrying out environmental due diligence and managing adverse environmental impacts will often involve taking into account multiple environmental, social and developmental priorities. Notably the Paris Agreement preamble takes into account the imperatives of a just transition, of the workforce and the creation of decent work and quality jobs in accordance with nationally defined development priorities, and acknowledges that when taking action to address climate change, Parties should respect, promote and consider their respective obligations. In this respect it is important for enterprises to assess and address social impacts in the context of their environmental management and due diligence activities and to take action to prevent and mitigate such adverse impacts both in their transition away from environmentally harmful practices, as well as towards greener industries or practices, such as the use of renewable energy. Respecting labour rights, including engaging in social dialogue and collective bargaining […] meaningfully engaging with relevant stakeholders and, where relevant practicing responsible disengagement […], will be important in this respect.” (OECD, 2023[20]).

The report was developed in response to the OECD Ministerial Declaration on Promoting and Enabling Responsible Business Conduct in the Global Economy which states: “WE UNDERSCORE the importance of business contributions and innovations, including credible net-zero plans, for achieving sustainable production patterns, a just transition to climate neutrality by 2050, reducing threats to biodiversity by 2030 and for supporting a circular economy. WE RECOGNISE the need to avoid and minimise environmental harm associated with economic activities, particularly in light of the crises of climate change, biodiversity loss and pollution, and the impact of these crises on our societies, as well as the importance of transfer and diffusion of know-how and technologies to help reduce greenhouse gas emissions and pollution and build resilience. WE ARE COMMITTED to leveraging RBC standards as a key contribution to meeting these challenges. [...] WE RECOGNISE that the Guidelines are particularly well-placed to promote a holistic and comprehensive approach to environmental management and climate action that also takes into account social impacts.” (OECD, 2023[1]).

This report draws on the 2015 ILO Guidelines for a just transition towards environmentally sustainable economies and societies for all, which was developed and adopted by the ILO tripartite constituents as a practical tool for governments, employers and workers organisations.

1.3. Methodology

The report is based on in-depth interviews with 22 companies and financial institutions and 11 industry associations, trade unions, civil society organisations, international organisations and academia, across energy (including oil and gas, coal and minerals, and renewables), transport (automotive and aviation), manufacturing (garments and footwear) agriculture and the financial sectors. The sectors were selected based on a 2024 survey among 133 experts that asked respondents to identify responsible business conduct issues across industry sectors. The interviews explored how social impacts associated with company transition strategies and activities are understood, prioritised, and integrated into company activities, as well as the barriers and enablers that companies are encountering.

The report also benefitted from an iterative consultation process with 30 organisations participating in an informal multistakeholder advisory group. The group included representatives from OECD and partner governments, international organisations, trade unions, civil society organisations, Indigenous Peoples organisations, and companies and industry associations from multiple sectors (energy, finance, agriculture, manufacturing, apparel, construction and e‑commerce). During the development of this paper, the authors organised periodic working meetings with experts to provide input and support in drafting. Individual companies also volunteered to provide deeper insight into the practical nature of the report and how they are implementing the actions described herein.

Notes

← 1.  Some studies suggest that jobs in transition materials and renewable energy tend to be lower quality jobs, with lower wages and levels of protection. See for instance (OECD, 2024[100]) unless specific measures are not taken to support the transition of vulnerable populations, including women, persons with disabilities, youth, etc., they will not get positive gains from the job creation and existing inequalities are likely to be perpetuated.

← 2.  This report refers to the two documents in combination with other sector specific OECD Due Diligence Guidance as relevant (e.g. the Due Diligence Guidance for Meaningful Stakeholder Engagement in the Extractives Sector) as OECD RBC standards.

← 3.  This document is not intended to provide detailed practical guidance on how to implement the six steps of the OECD due diligence process, nor does it cover all of the recommendations of the OECD Guidelines.