How is climate change going in China, India and Brazil

5 December 20212 years ago babelfish

Emerging markets have very different approaches to climate change mitigation. Here are which ones. The analysis by Manraj Sekhon, chief investment officer of Franklin Templeton Emerging Markets Equity

A VARIEGATED PANORAMA

According to current forecasts, global policies should be able to limit global warming to about 3 ° C above pre-industrial levels by 2100; this is a result far from the objective of the Paris Agreement, which would require limiting the rise in temperatures to less than 2 ° C, preferably to 1.5 ° C. To achieve this, several countries have pledged to zero their net emissions. In the emerging universe, the landscape is very varied, with some countries that have announced important emission reduction targets and others that have yet to adopt a concrete policy.

To achieve climate-friendly development, emerging market governments will need to adopt fiscal and structural reforms that foster growth and promote resilient low-carbon investments, backed by productive and cost-effective climate policies. In this context, our goal to understand the climate commitments of our subsidiaries takes into account both local and global perspectives, in the knowledge that the pace of decarbonization and related strategies will vary from one country to another.

Take China for example: the country is the largest carbon emitter in aggregate terms, but its per capita emissions are lower than those of several developed economies. Therefore, in integrating climate considerations into our investment process, we seek to understand local requirements at the country, sector and firm level, taking a pragmatic approach based on the real world. We also know that some industries will need to decarbonise their businesses much faster than others, so our approach has a sector-specific focus, which also helps prioritize our engagement initiatives. National climate resilience policies

Major emerging markets have announced climate ambitions (including, in some cases, legislative action) to limit and reduce emissions, as well as more direct plans to address key environmental problems.

China's efforts to zero net emissions by 2060 will make a significant contribution globally, as the country accounts for 30% of global carbon emissions, and its commitment covers two-thirds of the total emissions of the countries that have declared l 'intention to reach the “net zero” goal. The transformation of China's energy mix will play a key role here, as most of its emissions come from electricity generation and industrial production. Policymakers have targeted these areas with guidelines mandating the adoption of green energy, emission-efficient manufacturing processes and energy storage. China's wind and solar generation mix is estimated to increase from less than 10% in 2020 to more than 30% in 2030. As the figure is already close to 39%, the country has set itself a potential new target of 60%. .

While India does not yet have a “net zero” target, its plan to reduce the emission intensity of its gross domestic product by 35% by 2030 from 2005 levels focuses on real impact. This ambition explains the push for the production of electric vehicles, as well as the demand that state-owned companies take action to mitigate climate change. India also aims to increase the share of non-fossil fuels in its total electricity production to 40% by 2030.

Brazil already has one of the cleanest power generation portfolios in the world. More than 80% of its energy is produced from sustainable sources, with nearly 65% coming from large hydroelectric projects and more than 15% from wind, solar and biomass. In addition to plans to diversify renewable energy sources, the Brazilian administration has pledged to achieve climate neutrality by 2050 rather than 2060; to contain illegal deforestation by 2030 and to increase the funds earmarked for this purpose for the police; and to pursue the goal of reducing greenhouse gas emissions by 43% by 2030 compared to 2005 levels as part of the contribution determined at national level.

ACTIONS FOR CLIMATE TAKEN BY COMPANIES

The recent IPCC report – the first major review of the science of climate change since 2013 – found new evidence of the link between emissions and climate, thus placing certain sectors and governments directly responsible for this change. This intensifies the global ambition to achieve net zero emissions over the long term and highlights the implications of the necessary adjustments in capital markets, particularly in view of the COP26 to be held in the coming weeks.

Companies in emerging countries are preparing for climate change in several ways. Some are committed to significantly decarbonising their high-carbon businesses, while others provide environmental solutions through their products and services. Industrial change has accelerated, with many companies using technology to reduce carbon emissions, abandoning the most polluting industrial activities and orienting their strategy towards green sectors such as renewables and electric vehicles. Of particular importance are the technological advances that have improved the energy density of batteries and increased the conversion efficiency of solar panels. Another sector affected by significant investments is that of green hydrogen.

OUR ROLE IN THE SOLUTION

Eco-sustainable and profitable business models are an investment opportunity for us where we see potential for growth in demand and a contribution to positive environmental outcomes. Major examples include the solar supply chain, electrolyte production, electric vehicles and the hydrogen supply chain.

We also invest in companies operating in carbon-intensive sectors, such as cement and steel, which demonstrate commitment and concrete innovations on the decarbonisation front. These companies play a crucial role in reducing global emissions. Given the economic cost of carbon emissions for these business models, decarbonisation becomes a relevant ESG factor to take into account.

Our investment process incorporates top-down policy and sector studies, bottom-up business research and a comprehensive ESG analysis, including climate considerations, to help identify investment opportunities and reduce overall business risks. wallet. Incorporating significant environmental issues into our business forecasts can cause us to change growth projections, margin expectations or discount rates. Furthermore, as active managers of our clients' capital, engagement is a fundamental tool that allows us to understand and facilitate a company's ESG journey, thanks also to a local presence and access to management.

Climate change is a problem that spans multiple decades and whose importance is set to increase, with dynamics that vary from one market to another. We believe that opportunities can be found in companies providing climate solutions and those adopting innovations to decarbonise their operations. Consequently, the extent to which a firm is prepared to handle relevant climate issues is a key element of our bottom-up earnings sustainability assessment. By leveraging our local presence in emerging markets, we seek to seize these opportunities and drive positive change within companies, with the aim of achieving better results.

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/politiche-cambiamento-climatico-cina-india-brasile/ on Sun, 05 Dec 2021 07:24:56 +0000.