How to unlock more climate-related investment in emerging markets
Climate risk is financial risk. Yet understanding just how prepared countries and companies are for the transition to a lower carbon economy remains a challenge. There has been a huge push to increase corporate disclosure around climate change, but this has gone farther in developed economies, especially the EU, than in emerging economies - where much climate investment should take place.
At an FT-EBRD joint webinar on Tuesday, experts including the EBRD’s Managing Director for Green Economy and Climate Action, Harry Boyd-Carpenter discussed why this matters and whether more and better disclosure could drive investment in emerging markets. Also joining the conversation at the EBRD and #FTDigitalDialogues webinar, 'Closing the Disclosure Gap: Unlocking climate-related investment in emerging markets', were Carola van Lamoen, Robeco’s head of sustainable investing; Fatih Ozkadi, director of quality, sustainability and corporate affairs at Arcelik Global, a Turkish white goods manufacturer which has both set a net zero target for 2050 and issued its own green bond; and Yerlan Syzdykov, global head of emerging markets, Amundi.
The pace of development was more advanced in developed countries, Boyd-Carpenter said. He measured this by looking at the global numbers of supporters of Task Force on Climate-related Financial Disclosures, or TCFD, a voluntary framework for climate disclosures by companies. In a fast-evolving market, commitment to making such disclosures is widely seen as an important milestone towards the management of climate risk, and the EBRD was an early TCFD supporter.
“Only 15 per cent of TCFD supporters are in emerging markets. When we look at EBRD countries, we have just have 36 companies that are signed up to TCFD. So I think it’s fair to say that this is a trend that is moving faster in developed markets. But you can see things moving very fast and you can see this as an opportunity for everybody involved,” said Boyd-Carpenter.
All speakers agreed that outreach, communication and cooperation were vital in teaching companies, including in emerging markets, how best to adjust their business to support the transition to a green economy. Learning to map their greenhouse gas emissions transparently and plan ahead to reduce them would be incentivised by the benefits it brought in terms of easier access to capital. They also recognised the need for wider stakeholder engagement, primarily with financial supervisors and regulators, to support improved financial disclosures.
Arcelik Global’s Ozkadi also stressed the benefit the example of climate regulations in the EU, a leader in this area, brings for companies like his, which operate outside the EU. “Most of the regulatory moves for transition to a low-carbon economy are taken by the EU. This regulatory environment pushes investors to disclose ESG and to understand recent opportunities, while at same time requiring corporations to adopt transparent levels of reporting. So the regulatory environment makes corporations operating in the EU - or exporting into the EU - make much more progress when it comes to sustainable disclosure. However the companies in evolving markets are also making progress to adopt ESG disclosure measures because they want to attract investments. Almost 70% of investments to transition to low-carbon economy needs to be made in emerging economies.”
Speakers also agreed that all countries and companies should strive to adhere to a global climate measurement system, which would evolve further, rather than a two-track system with a higher bar for developed countries. They agreed that the TCFD was the starting-point for companies today, which are faced with an increasing number of measuring systems and benchmarks, but hoped that a single mandatory regulatory system for climate would eventually evolve.
“The starting points of climate change or environmental degradation are global issues, and so is the need to access capital. And so is also the increasing interconnectedness of the world,” said Boyd-Carpenter. “People need to see this as a global challenge, for the global business community and global community of investors.”