Climate Transition and Investment for Emerging Economies

 To achieve the net-zero carbon goal by 2050 set within the Paris Agreement, substantial climate mitigation investment into emerging economies is vital for the transition. Emerging economies play a significant role in the current carbon issue due to them emitting around two-thirds of global greenhouse gas emissions.

However identifying the issue isn’t enough, tackling it can be very hard as it is estimated these countries will need $2 trillion annually, a five-fold increase from the current $400 billion investments into protecting the environment. This increase in investment is only made possible by an increase in private sector investment, due to the public sector not being able to increase funding substantially. This provides a dilemma, as lower income countries don’t have the funds, and economic stability, to invest into greener technology without it having detrimental effects on the development of the countries and their economies.

Solutions are trying to be creates as seen through the Green Climate Fund (GCF), established under the United Nations Framework Convention on Climate Change (UNFCCC), aims to channel financial resources from wealthier nations to developing countries for projects and programs that mitigate and adapt to climate change. The Fund aims for a 50:50 split between mitigation and adaptation investments over time.

The private sector could see an increase in investment as an opportunity, as it has a natural incentive to respond to market demands that simultaneously cater to adaptation needs. For example, private sector enterprises will not build dams but they will make a substantial investment if doing so would yield better economic outcomes. The private sector will need to supply about 80 percent of the required investment, which is a huge proportion showing the reliance and pressure put onto the sector.

However, there is a growing number of investment funds prioritising sustainability, but this can be argued due to firms wanting to enhance their green image to attract investment and consumption. The increase isn’t having much effect on how much money is being provided for large climate needs, with only a small portion of such funds explicitly aim to create a positive climate impact. More impact-oriented investment portfolios could be quite different from the popular ESG-oriented ones.

Policies to be aimed at emerging economies need to refocus on creating climate impact rather than supporting activities that are already “green”. The specific needs of emerging markets and developing economies should be targeted as their rapid future growth will unequivocally have a serious impact on the global climate if action isn't taken, and taken soon.