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Torry Berntsen, CEO Europe and Americas, Standard Chartered Bank
COVID-19, food insecurity and commodity shortages compounded with climate change have left many emerging market economies extremely vulnerable to a multitude of risks. Events, such as IMF-World Bank Meetings, COP 27 and the World Economic Forum, continue to see increased discussion and interest in sustainability investments in Asia, the Middle East and Africa – but only real action and commitment will bring about a tangible and just transition.
Emerging markets need nearly $94.8 trillion to transition to net zero. They must get the help they need to do so, or the Paris Agreement and United Nations Sustainable Development Goals will not be achieved.
If governments of emerging markets self-finance, we expect a resulting $79.2 trillion reduction in household consumption. This in turn will have a huge impact on consumer markets and drag down global trade.
Financing cannot come from governments alone. Private sector financing is key to filling in the gap. Therefore, a blended finance approach which mobilizes development funding and private capital, not only reduces risk for the private sector but is a valuable tool in mobilizing capital to where it’s needed most.
With this approach, the private sector will still see potential investment returns while concurrently supporting the emerging markets’ transition to net zero.
In addition to the greater familiarity developed markets offer, investors are often put off by perceived structural issues when dealing in emerging markets. These challenges can range from the lack of greater legal certainty, general lack of market transparency, and potential bribery and corruption risk.
Equally, with rising rates, a stronger US dollar, and increased uncertainty around global growth, cautiousness about emerging markets is likely to increase and long-term sustainability linked projects may end up on the back burner.
Private investors and financial institutions should, however, take a longer-term approach as the reality is that each market will offer different potential.
ASEAN, for example, is a region that is expected to remain a key engine for growth through the uncertainty – with Vietnam, Indonesia and Thailand often quoted as examples of opportunities and generating greater interest during client discussions.
Investors who adopt a longer-term approach will stabilize economies, support livelihoods and combat climate change while achieving returns — a win-win for the investor and local communities.
Businesses, banks and financial institutions which fund a transition sooner will need to identify trusted partners with depth of experience and on the ground presence to help them navigate the market landscape ahead of their competitors. With the right relationships, they will gain access to government-backed ventures in clean technology projects through leading green financing solutions such as green, transition or blue bonds, as well as blended financing opportunities.
The size of the task is huge, the need for action is immediate and the consequences of failure could be catastrophic. Climate change is affecting all of us and will require every industry and sector to be engaged and work together for the planet we all share.
Torry Berntsen was appointed Regional CEO, Europe and Americas and CEO Europe and UK in January 2021.
Standard Chartered Bank is a British multinational banking and financial services company headquartered in London. It operates more than 1,200 branches across over 70 countries. Around 90% of its profits come from Asia, Africa, and the Middle East.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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