Climate change is the greatest structural challenge facing the world today and addressing it will require humanity’s greatest ever collective effort.
COP26 rightly signalled greater focus on financing the net zero transition, especially in the markets we call home – in Africa, Asia and the Middle East. It’s here where low carbon technologies can have the greatest impact but there are also profound climate risks and a huge transition challenge ahead of us.
Our latest report, Just in Time, issues a call to action by demonstrating the potential impact, on emerging market communities, of private investors failing to deliver on their COP26 pledges and plugging the USD94.8 trillion financing gap.
Our report shows that without help, emerging market populations could be USD2 trillion poorer per year (USD79.2 trillion poorer cumulatively between now and 2060 – the date by which some key markets seek to achieve net zero).
There is an opportunity for private investors to help drive a just transition, moving assets from developed to emerging markets with the help of the right policies and regulation.
Private capital from developed markets could help boost household consumption in emerging markets by 4.5 per cent on average each year between 2021 and 2060 and emerging market GDP would be 3.1 per cent higher on average each year between 2021 and 2060.
Just in Time also confirms that, if emerging markets continue with their existing climate policy and transition investments, we are likely to see catastrophic global temperature increases of at least 3°C by 2100 (perhaps even as high as 3.5 or 3.6°C).1
1 The baseline scenario is modelled on current trends including existing climate policy. See the methodology (About Just in Time) for further details.
Attracting the necessary capital from developed markets to aid emerging market transition will be a challenge. As shown in our previous report, The USD50 Trillion Question, the world’s top 300 investment firms with total assets under management of more than USD50 trillion, have just 2 per cent, 3 per cent and 5 per cent of their assets invested in the Middle East, Africa and South America, respectively.
In addition to attracting investment, we need a fairer transition financing model, with the public and the private sector working together and the developed world partnering with emerging markets to plug the financing gap. Governments and private sector investors will need to take a market-by-market approach, recognising that each market has its own emissions reduction pathway and challenges to transition at pace.
Banks and other financial institutions have a key role to play in developing and scaling the structures that will channel the trillions required for the net-zero transition in emerging markets. To this end, Standard Chartered pledged to mobilise USD300 billion in green and transition financing, guided by our Transition Finance Framework. Our progress so far is encouraging, and the pace is picking up.
Overall, I remain confident in our collective ability to deliver a Just Transition to net-zero. I know that it will be difficult; we will all need to act with much greater urgency and relentlessly work through the difficult issues together. But then again, given the stakes involved, why wouldn’t we?
How much investment do emerging markets need to transition? And how can this be financed in a way that allows these markets to continue to grow and prosper? Just in Time: Financing a just transition to net zero sets out to answer these questions.
For the purposes of this study, we have assumed that emerging markets transition to net zero by 20602, while the developed world reaches net zero by 2050 and is net negative thereafter. Our model is consistent with limiting long-term global temperature rises to 1.5⁰C above pre-industrial levels.
Emerging markets need to invest an additional USD94.8 trillion3 – a sum higher than annual global GDP4 – to transition to net zero in time to meet long-term global warming targets.
This is on top of the capital already allocated by emerging-market governments under their current climate policies.
2 The 2060 net zero timeline selected by our economists specifically for this study, reflects the current status of commitments to net zero across many of our markets and specifically the slower pathway for emerging markets as foreseen under the Paris Agreement. This differs from the 2050 timeline for all markets we use for our own approach to net-zero highlighted in our recent whitepaper and which we encourage all stakeholders to adopt 3 All absolute monetary values given in the report are in 2021 prices. 4 “The world GDP, comprising 194 economies, in 2021 is projected around US$93.86 trillion in nominal terms, according to the IMF”
Standard Chartered would like to thank Just in Time’s global panel of climate change experts:
5 Our Global Panel of Climate Change Experts were interviewed for their thoughts on net zero transition emerging markets. Comments from the panel can be found throughout the report.
