Making just transition finance work in practice

Our project “Making just transition finance work in practice” focuses on leveraging the role of finance in contributing to a just transition. The idea of a “just transition” is : climate action needs to go hand in hand with social aspects. The project aims to bring financial institutions together to co-develop practical solutions that make this vision real. Instead of abstract concepts, we will focus on hands-on approaches – like how banks and investors can build fair transition plans or design financial products that support both climate and social goals. The project kicked off in September 2025 and will last for the next 2.5 years.

Situation

The political momentum for a strong role of the financial sector in our economies’ just transition to operating within the safe limits of planetary boundaries is fading. Delays and dilutions of key EU sustainability regulations, financial institutions struggling with the complexity of developing meaningful transition plans and metrics: the previously promising momentum of the EU Green deal, Germany’s energy transition or global green finance initiatives has slowed for various reasons.

Challenging complexities

At the heart of this slowdown, we have identified three challenges underlining the particular complexity of the transition in the financial sector, which need to be addressed.

1. Lack of attention paid to the social dimension of the transition

The transition is not how many like to portray it, a glorious Schumpeterian story of the new and innovative replacing the old and outdated. The uneven distribution of the cost and benefits – and the reality that any transition creates both winners and losers – must be fully acknowledged in transition planning. Without this, the sustainability transformation stands little chance of gaining broad public support and electoral backing.

2. The financial sector is many sectors and financial institutions are no monolithic blocks

Just like agriculture, energy intensive industries, energy or transport require their individual transition strategies, the financial sector consists of a wide range of different organisations providing a wide range of rather different services, usually across a large part of the economy and very different clients (from large, publicly listed companies, to SMEs, municipalities or private households). That makes a transition strategy for a financial institution more complicated than, say, an energy utility’s transition plan, but also very different for large asset owners or local saving banks.

The laudable attempt of the EU to introduce mandatory sustainability due diligence for “the financial sector” failed partly due to the lack of appreciation that the ability and means of exercising due diligence differs massively between, say, an asset manager’s equity portfolio and a bank’s loan book. And a transition or transition plan means different things and has very different implications and impacts for the different people (a.k.a. human beings) working in a bank’s risk management, portfolio management, engagement or strategy team.

3. Financial and non-financial sector hand in hand

Having spent a lot of our time in the key sustainable finance venues, policy processes and platforms over the past 5 years, we observed one problem in particular: the conversation has mostly taken place amongst financial sector peers. With some exceptions, it has remained focused on how the financial sector might divest from environmentally harmful activities or green their loan books, rather than capturing the broader societal transformation that must occur, particularly in high-impact sectors. To support this transformation, financial institutions’ transition plans need to be clear about what to realistically expect from non-financial corporates, be aligned with the sufficiently ambitious and speedy transition of the “real economy” to stay within planetary boundaries and appreciate the differences between sectors, addressing the most critical sectors first.

Resolution

If we do not want to lose the transition momentum entirely, we need immediate action to pilot pragmatic, ambitious just transition strategies, create success stories, and influence the evolving policy discourse.

This just transition Finance project highlights the crucial role of the financial sector in implementing a just transformation and presents concrete work packages and pilot projects to pave the way. Through four central activities, we follow a bottom-up strategy to support financial institutions in substantially contributing to the just transition of the EU economy.

1. Preparing the Ground

Engaging with experts, bringing financial institutions on board, developing a common understanding of key transition areas and data needs. (~ until Q2/2026)

2. Pilot Projects for Practical Implementation

The core of the project. Co-developing practical approaches to just transition finance with committed financial institutions to test & demonstrate what works. Results will be shared via a practical guide and/or relevant online resources to promote adoption by peers . (~ starting from Q3 2026)

3. Mainstreaming transition finance

To scale up success stories and promote market and regulatory uptake, engaging with the broader financial sector, standard setters and policymakers. Distributing the narrative through media engagement. (~ throughout the entire project)

4. Engaging the real economy (the fashion sector)

Mapping  “who finances what” along the fashion value chain and analysing intervention opportunities. Working with 2-3 EU fashion brands to exchange with financial institutions , and facilitating dialogue with civil society and labor representatives. (~ throughout the entire project)

We invite forward-thinking financial institutions and fashion companies to partner with us in shaping practical, ambitious just transition strategies. Through this project, you will have the opportunity to co-develop and test innovative tools, pilot transition finance products, and align disclosure and due diligence approaches with real-world sector needs. By joining, you can help create tangible success stories, strengthen regulatory frameworks, and demonstrate leadership in driving a fair and sustainable transformation of our economies. Together, we can turn ambition into action and ensure the transition works in practice for people, businesses, and the planet.