According to Schroders, poor nations are more likely to be harmed by the negative consequences of climate change than industrialised countries since they rely more heavily on climate-sensitive industries such as agriculture, forestry, and tourism.
The International Energy Agency, on the other hand, believes that the average cost of emissions avoidance is around half that of developed nations, making clean energy investment in these regions a potentially cost-effective option to cut world emissions.
“By investing in sustainably run companies whose products or services help address environmental and societal challenges, our intention is to have a positive impact and advance the United Nations’ sustainable development goals while generating an attractive financial return,” said Jonathan Fletcher, Schroders’ emerging market fund manager and head of EM sustainability research.
According to asset management, there are several enterprises in developing countries that are facilitators of beneficial environmental effects across a wide range of industries.
“Manufacturers of electric cars (EVs), EV batteries, and renewable energy systems, such as solar panels and wind turbines, play a direct part in the energy shift,” Fletcher noted.
“While semiconductor makers play a more indirect role, their products are a crucial component in green transportation such as EVs, as well as boosting industrial energy efficiency.”
According to Schroders, firms that invest in and contribute to the clean energy transition will enjoy high demand growth as the globe switches to net zero.
Schroders thinks that investing in developing economies requires more than just a “buy-and-hold” strategy and that additional aspects such as ESG, market competitiveness, geopolitics, and valuations should be considered.
Investors should understand the target company’s manufacturing processes and supply chains, as well as its impact on the environment and people, and determine whether the energy sources are renewable and the working conditions are of good quality.
Company transparency, according to Schroders, has never been more critical for getting such information. While information openness improves, investors should also assist in identifying where firms fall short, engaging in dialogue, and driving change.
Another advantage of actively participating in sustainable investment is the ability to identify firms with great potential.
Because of the high level of competition in sustainable industries due to the low cost of capital and abundant subsidies, ESG investors should not only invest in China given its size but also look for opportunities across a range of emerging markets, from South Korea and Taiwan to Brazil, according to the asset manager.
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