Leaders, industry members and investors have pushed the cause of net zero with ever greater urgency in recent years. However, our planet is too diverse to apply the same solution universally without appreciating the intricacies within each region.
Through the current net-zero framework, emerging economies risk being left behind as part of the transition, a move that will not only bring devastating social and economic consequences for these countries but also will undermine the global transition entirely.
The need for a globally inclusive transition, which factors in emerging markets alongside developed nations, is an issue we're particularly attuned to as an African-headquartered asset manager.
Emerging markets, while the high emitters of today, are not responsible for the bulk of emissions to date and yet are set to face the most devastating consequences from climate change.
These regions face a huge funding gap to meet sustainability goals, a position that the pandemic has made more acute due to emerging markets' slower economic recovery and less available fiscal firepower. A rebalancing of the capital deployed to emerging markets vs. developed markets is therefore vital if we all are to be successful in saving our planet.
A further investment of $2 trillion to $4 trillion needs to be allocated to emerging economies if we're to meet the Paris Agreement goals. It's also estimated 70% of the 17 Sustainable Development Goals and Paris Agreement capital needs to go to emerging countries; however 80% of the world's ESG/sustainable investment funds are focused on global or developed markets.
Action is needed to help close this funding gap. However, rather than being incentivized to plug this gap, the current frameworks are motivating investors to divest away from these emerging economies.