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Achieving Net Zero Goals – Time to Focus on the Human Capital Challenge

By April 12, 2023May 3rd, 2023No Comments

While there is currently a lot of attention focused on the financial capital required to transition to a net zero, low-carbon economy, there has been far less focus on the human capital skills and development needed and this may in fact be the most important challenge facing us when it comes to achieving net zero.

Key human capital deficiencies that we currently face include:

Addressing the skills gap – The numbers are challenging. In the energy sector alone, the International Energy Agency projected in its seminal report, Net Zero by 2050: A Roadmap for the Global Energy Sector, that the energy transition will create 14 million new jobs related to clean energy technologies and require the shift of around 5 million workers away from fossil fuel sectors. In addition to these new roles, 16 million workers will require additional skills and training in order to shift to work in clean energy segments. A comprehensive global survey by LinkedIn in 2022 found that the current development of green talent will not meet the demand for green jobs. The study noted that while job postings requiring green skills grew at 8% annually over the past five years, the share of green talent has only grown at 6% annually in the same period, creating a growing capability gap when it comes to building a low-carbon economy.

Addressing the investment opportunity gap – Connected to the skills gap is the reality that there are currently not sufficient green enterprise investment opportunities to absorb the capital needed to support a transformation to a low-carbon economy. As Ian Simm, the CEO of Impax Asset Management Group, which runs a $50 billion fund with one of the world’s biggest low-carbon investment portfolios, notes in an interview with Bloomberg, “From our vantage point, what’s holding this back isn’t the lack of private capital but a dearth of investible projects.”

This confirms the finding from HMI’s research, which also indicated a lack of scalable investment opportunities in the low-carbon economy for large institutional investors.

For institutional investors under increasing pressure to do more to advance the climate transition, their primary avenue for achieving their net zero commitments is to engage with their portfolio companies to push and support them to do more to “green” their supply chains and product and service offerings while upskilling their workforces for a low-carbon economy.

While investors and financial capital players have a significant role to play in this regard, governments and businesses will also need to work together to train a new cohort of workers in “green” skills, as well as reskilling their existing workforce. A “just” transition to a low-carbon economy is possible but only if we consider equally both the financial and human capital investments needed to achieve this.