November 2022
With over half the estimated US$100 trillion of global green investment required to meet net zero targets likely to be needed in emerging markets (EM), what opportunities will this create for global investors? Here, BNY Mellon Investment Management global chief economist Shamik Dhar surveys the evolving landscape and the key EMs looking to decarbonize.
Emerging markets could play a potentially huge role in global efforts to decarbonize our planet and slow the pace of climate change, according to new research by Fathom Consulting and BNY Mellon Investment Management.
The authors of the Investment to Achieve Net Zero by 2050 research report believe over half the estimated US$100 trillion of green investment required to meet global net zero targets will be needed in EMs.
Commenting on the findings, BNY Mellon Investment Management global chief economist Shamik Dhar says: “About 50% of this investment is required in the 24 countries included in the MSCI emerging markets index, though there are additional emerging markets which are not included in this index which will also require significant investment spending, such as Iran, Hong Kong, Bangladesh, Vietnam and Nigeria.”
The research report’s analysis also shows that slightly more green investment will likely be needed in the BRICS (Brazil, Russia, India, China and South Africa) than in the G7 - with around a quarter of all global green investment likely to take place in China. 
Commenting on the importance of Chinese demand for green investment, Dhar adds: “Our analysis finds that just under a quarter of total green investment will be required in China. There are a few reasons for this. Firstly, the country is large and already accounts for more than 15% of global GDP. Secondly, it is expected to grow faster than most other economies between now and 2050.”
Dhar says that even using Fathom’s “somewhat conservative” estimates of GDP growth– more investment, including green investment, will be needed to support this growth.
“A higher-than-average share of electricity production in China comes from fossil fuels and the country also has an above-average CO2 intensity of GDP. This means that more effort, and investment, will be needed relative to the size of its economy,” he adds.
The research also suggests China, India, South Korea and Indonesia are expected to grow faster than the global average and currently use a high amount of coal for electricity generation. Consequently, they will require a larger share of green investment than their current share of global GDP, according to the report.
Its authors believe EMs will require more green investment than others, relative to the size of their economies. Their view is also that investment in EMs can achieve more in reducing CO2 emissions than an investment of equal value in advanced economies which could prove a crucial consideration for environmental, social and governance (ESG) or impact investors.
According to Dhar a key reason for EM’s high need for green investment is that they are also set to grow faster than advanced economies over the next decade, and will need to grow their capital stock, including green capital, faster to support this growth. A large proportion of EMs are also further behind in their transitions than advanced economies and so will require more investment to green their existing capital stock, he adds.
Glossary
Climate Change: Warming of the planet caused by greenhouse gases is one of the most serious challenges facing humanity and efforts to halt global warming are at the heart of many Responsible Investment initiatives.
G7: An inter-governmental political forum consisting of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
Net Zero: The balance between the amount of greenhouse gases produced and the amount removed from the atmosphere.
Green investment: Investing activities aligned with environmentally friendly business practices and the conservation of natural resources.
Disclosure
All investments involve some level of risk, including loss of principal. Certain investments have specific or unique risks. No investment strategy or risk-management technique can guarantee results or eliminate risk in any market environment.
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. This information may contain projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or expectations will be achieved, and actual results may be significantly different from that shown here. 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 that considers environmental, social, and governance (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.
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.
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.
While Fathom's proprietary climate data and tools were used to develop the sectoral risk framework presented in the Report, Fathom Consulting is not affiliated with BNY Mellon.
Not FDIC-Insured | No Bank Guarantee | May Lose Value
©2022 BNY Mellon Securities Corporation, distributor, 240 Greenwich St., New York, NY 10286.
MARK-320159-2022-11-10