Torry Berntsen, CEO Europe and Americas, Standard Chartered Bank
COVID-19, food insecurity and commodity shortages, compounded by climate change, have made many emerging market economies extremely vulnerable to a host of risks. Events, such as the IMF and World Bank meetings, COP 27 and the World Economic Forum, continue to generate increased discussion and interest in sustainable investments in Asia, the Middle East and Africa – but only real action and commitment will bring a tangible and just result. transition.
Emerging markets need nearly $94.8 trillion to go to net zero. They must get the help they need to do so, otherwise the Paris Agreement and the United Nations Sustainable Development Goals will not be achieved.
If emerging market governments are self-financing, we expect a $79.2 trillion reduction in household consumption. This in turn will have a huge impact on consumer markets and will hold back global trade.
Funding cannot come from governments alone. Private sector financing is essential to fill the gap. Therefore, a blended finance approach that leverages development funds and private capital not only reduces risk to the private sector, but is a valuable tool for mobilizing capital where it is most needed.
With this approach, the private sector will still see potential returns on investment while simultaneously supporting emerging markets’ transition to net zero.
In addition to the greater familiarity that developed markets offer, investors are often put off by perceived structural issues when trading in emerging markets. These challenges can range from the lack of greater legal certainty, to the general lack of market transparency and the potential risk of bribery and corruption.
Likewise, with rising rates, a stronger US dollar and heightened uncertainty around global growth, caution towards emerging markets is likely to increase and long-term sustainability projects could 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 driver of growth despite the uncertainty – with Vietnam, Indonesia and Thailand often cited as examples of opportunities and attracting greater interest in discussions with customers.
Investors who take a longer-term approach will stabilize economies, support livelihoods and fight climate change while achieving returns – a win-win for the investor and local communities.
Companies, banks and financial institutions funding a transition earlier will need to identify trusted partners with deep experience and on-the-ground presence to help them navigate the market landscape before their competitors. With the right connections, they will have access to government-backed companies in clean technology projects through leading green financing solutions such as green, transition or blue bonds, as well as financing opportunities mixed.
The scale of the task is immense, the need for action is immediate and the consequences of failure could be catastrophic. Climate change affects us all and will require every industry and sector to engage 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 in more than 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.