Emerging markets including China and India could be the best bets for investors hoping to fight climate change and boost returns, a report released on Thursday said.
If the planet heats up by 5°C, well above the 2°C threshold set by the Paris accord, investors might face US$7 trillion in global losses. However, that could be mitigated by investments aimed at reducing and removing carbon from the atmosphere, according to the report by Morgan Stanley & Co’s Institute for Sustainable Investing and the Economist Intelligence Unit.
Emerging economies from China to Cuba to Nigeria present some of the biggest opportunities for investors as they become centers of clean energy innovation. These regions are likely to be significantly affected by a warming planet and have increasingly tech-savvy populations, the report said.
“Countries are in different stages of development in terms of their energy and power infrastructure, so their needs may be very different,” Hilary Irby, cohead of the global sustainable finance group at Morgan Stanley, said in an interview. “In some cases, you have countries that may be able to skip traditional infrastructure.”
For example, Nigeria has a rapidly developing solar industry and expects energy consumption to grow almost 14 percent by 2020. Cuba, where the energy market is expected to see double-digit growth over the next five years, opened an renewable energy research and development center. India offers opportunities for clean transport, because vehicle demand is expected to double by 2020, the report said.
Bloomberg New Energy Finance forecast that more than US$4 trillion will be invested in renewable electricity generating capacity in Asia by 2040.
While energy tends to be the leading target for climate change mitigation, the opportunities to curb emissions from agriculture are highest in China, India and Brazil, the report said, adding that the biggest opportunities for reducing transport-related emissions are in the US, China, India, Brazil and Mexico.
Regulatory changes will also play a role in determining the industries investors can tap into to fight climate change. Countries such as China and India can see renewable energy sources as a path to reduce poverty, create jobs and improve energy security and social stability, the report said.
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