Asia’s emerging markets are still too reliant on fossil fuels, while their limited access to green finance is hampering decarbonisation, new research has found.
In its July report Decarbonisation in Emerging Markets, Janus Henderson argued that varying degrees of state market control, and poor frameworks and practices on emission targets and data collection have also stymied progress.
The struggle of some Asian nations to reduce carbon emissions highlights their unequal economic development, the report said.
For instance, China is the leading green bond issuer in Asia by a long stretch, and its economic strength gives it a natural advantage.
Other countries, however, “cannot be considered economic equals” and have been much less able to set up effective green finance solutions.
Laggard to leapfrog?
Portfolio manager Ales Koutny noted Asia came out of the traps quickly in the early days of green bond issuance, but has since become “a laggard, falling significantly behind other regions such as Europe or North America.”
Part of the problem is that an uneven regulatory landscape in Asia makes it difficult for investors to know how the proceeds of green fundraising are being used, placing them at risk of greenwashing.
But there are signs of progress: “Some countries are starting to develop taxonomies and frameworks to provide transparency which could encourage investor appetite,” Janus Henderson noted.
Koutny added that increasing national efforts on green bonds, such as in Singapore, mean Asia could soon “leapfrog” the rest of the world.
Net zero by 2070
India and China are two of the largest greenhouse gas producers in the world, so their success in the race to net zero will be vital to tackle the climate emergency.
But there is little sense of urgency: in 2020, the regional decarbonisation rate in Asia was 0.9%, well below the 2.5% average.
Janus Henderson’s research noted that nearly three-quarters of emerging markets have set or declared net-zero targets, but the timeframes are varied and some are very long – India’s is 2070 and China’s 2060 compared to 2030 for the Maldives.
China already generates a significant portion of the world’s renewable energy. However, its coal consumption continues to grow, up 4.6% to hit a record high last year. China will also be the world’s largest producer and consumer of nuclear power by 2030.
Call for policy action
Janus Henderson called for governments to embed stronger policy action on renewable energy projects including solar PV, wind and hydropower. This will help spur financing solutions for decarbonisation, it argues.
In fact, a combination of supportive government policy, technological innovation and emerging financial solutions could even help push Asia to the forefront of the green revolution, argued Matt Doody, research analyst in emerging market equities at Janus Henderson.
“As the ‘factory of the world’, Asia uses a significantly higher amount of energy in its economy than other regions – often fueled by coal or diesel.
Lowering greenhouse gas emissions and transitioning towards clean energy in these markets requires large investments in productive capacities that can change the energy mix.
“The main challenge facing emerging markets is the ability to create regional frameworks or green financing tools that are immune to roadblocks by country specific governments.
“More open and realistic dialogue is needed to create solutions that are flexible enough to react to the reality of local issues, but stringent enough to hold the region accountable for driving long-term change.”
Janus Henderson has created a Decarbonisation Emerging Market Index, an equally weighted index of scores given to three trends which show the degree and speed of progress of decarbonisation in emerging markets.
