December 2022
Despite a COP27 summit breakthrough agreement to provide funding for vulnerable economies hard hit by climate disasters, some wider promises on support to help them adapt to climate change remain unfulfilled. Here, BNY Mellon Investment Management global head of responsible strategy Kristina Church looks at efforts to boost emerging market resilience and potential challenges ahead.
In a world where climate change continues to ravage many developing markets, the decision to hold the 27th Conference of the Parties (COP) in Egypt was seen as a positive step in highlighting some of the key threats faced by the developing markets hardest hit by climate change1.
While developed markets such as the US and Australia are not immune to extreme weather events, emerging markets (EMs) have borne, and are expected to bear, much of their cost. This year alone saw climate driven famines in Somalia and Ethiopia and severe heatwaves sweep China. These disasters - and the catastrophic flooding in Pakistan which killed nearly 2,000 people2 - suggest extreme climate events are becoming both more common and more deadly.
With efforts to reach net zero carbon emissions by 2050 in a bid to keep global warming to no more than 1.5 degrees centigrade seen as increasingly ambitious, some tough decisions will be required. Already it is becoming clear to scientists that some of the environmental damage wrought by humankind may be irreversible3 and that adaptation to our new climate may be the only option.
BNY Mellon Investment Management head of responsible strategy Kristina Church maintains it is not too late to implement preventative measures to help stem further increases in global warming. But she believes equal focus should center on adapting to our new climate as well as mitigating further damage. “We should not stop trying to prevent things from getting worse. However, science is telling us we should be focusing as much as on adaptation to climate damage as on its mitigation,” she says.
Balancing act
For Church, the joint requirements of climate mitigation and climate adaptation mean policymakers must perform a delicate global balancing act.
“The more climate damage we create, the more adaptation financing will be required. In turn, the more successful we are in mitigating climate change the less we will need to adapt to its impacts. It is worth noting, however, that even if we limit global warming to no more than 1.5 degrees, we will most likely still see rising sea levels, the destruction of coral reefs and a rise in heatwaves, droughts, floods and other extreme weather events.”
Adapting to the climate crisis - which could require everything from building new sea walls to creating drought-resistant crops - could cost developing countries anywhere from US$160- US$340bn annually by 2030, according to some estimates4. That number could swell to as much as US$565bn by 2050 if climate change accelerates, according to the UN Environment Program’s (UNEP’s) 2022 Adaptation Gap Report.
The good news for EMs at COP27 was agreement on an ‘historic’ new deal to set up a global fund to provide potentially billions of dollars of financial assistance to poor nations stricken by climate disaster and facing significant ‘loss and damage’5.
However, Church points out that developed market governments have broken promises in the past on funding to help poorer countries cope with climate change. A 2009 pledge by developed countries they would transfer US$100bn per year to vulnerable states hit by increasingly severe climate-linked impacts and disasters has yet to be fulfilled, leaving trust among some EM governments in short supply6.
Church remains concerned by the slow pace of change on the road to net zero and in addressing the worst impacts of global warming. While the Covid-19 pandemic and its associated lockdowns brought a temporary dip in global carbon emissions, she fears valuable time may have been lost in the fight against climate change.
“One year on from COP26, we have seen a business recovery in most countries post Covid and a resulting step up in carbon emissions as opposed to the step down that is urgently needed. Other factors including increasing livestock farming and even the impact of military conflict, have also added to CO2 emissions and wider, more localized, environmental damage,” she says.
One such contributor to greenhouse gases has been the war in Ukraine, where weapons manufacture and the destruction of infrastructure have contributed to rising CO2 emissions. The environmental impact is such it has led Ukraine to demand Russia be forced to pay for greenhouse gas emissions caused by the war7.
Back to nature
One positive to come from COP27, previously also raised at COP15 in Montreal, says Church, was a renewed focus on nature-based solutions. Measures such as reforestation and wider.
1 World Economic Forum. COP27 is a unique opportunity for emerging markets to shape global climate action - we must seize it. September 22, 2022.
2 Raconteur. 2022 in review – climate crisis sharpens focus on sustainability. December 2, 2022.
3 Reuters. U.N. climate change report sounds 'code red for humanity'. August 9, 2021.
4 UN Environment Program. COP27 ends with announcement of historic loss and damage fund. November 22, 2022.
5 Guardian. Cop27 agrees historic ‘loss and damage’ fund for climate impact in developing countries. November 20, 2022.
6 Reuters. Rich countries failed to meet their climate funding goal. July 29, 2022.
7 Bloomberg. Ukraine wants Russia to pay for the climate damage wreaked by its war. November 10, 2022.
8 The Adaptation Fund finances projects and programs that help vulnerable communities in developing countries adapt to climate change. Initiatives are based on country needs, views and priorities. It is funded largely by global government and private donors.
Disclosures
All investments involve risk, including the possible loss of principal. Certain investments involve greater or unique risks that should be considered along with the objectives, fees, and expenses before investing.
Recent market risks include pandemic risks related to COVID-19. The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect certain countries, companies, industries and market sectors more dramatically than others. This material has been provided for informational purposes only and should not be construed as investment advice or a recommendation of any particular investment product, strategy, investment manager or account arrangement, and should not serve as a primary basis for investment decisions. Prospective investors should consult a legal, tax or financial professional in order to determine whether any investment product, strategy or service is appropriate for their particular circumstances. Views expressed are those of the author stated and do not reflect views of other managers or the firm overall.
Views are current as of the date of this publication and subject to change.
The information is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.
There is no guarantee that any strategy which considers ESG factors will be successful, or that any strategy will reflect the beliefs or values of any particular investor. Because ESG criteria exclude some investments, investors may not be able to take advantage of the same opportunities as investors that do not use such criteria.
BNY Mellon Investment Management is one of the world’s leading investment management organizations, encompassing BNY Mellon’s affiliated investment management firms and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the corporation as a whole or its various subsidiaries generally.
Not FDIC-Insured | No Bank Guarantee | May Lose Value
© 2022 BNY Mellon Securities Corporation, distributor, 240 Greenwich Street, 9th Floor, New York, NY 10286
MARK-331221-2022-12-20