Emerging Markets Stepping Up in Global Climate Transition
As the ambitions of governments regarding environmental issues become increasingly fragmented, emerging markets are taking on a pivotal role. They are not merely recipients of global capital flows but are now actively engaged in constructing the next phase of the transition towards sustainable economies. This shift marks a significant change, with emerging markets evolving from being marginal participants in the global climate dialogue to becoming influential players that help shape its trajectory. However, the policy priorities in these regions are often complex and sometimes at odds with one another, reflecting their growing independence as they navigate their own paths toward sustainability.
Understanding the Investment Landscape
For investors, the growing ambitions of emerging market governments juxtaposed with their existing capabilities are crucial to grasping the investment landscape. While numerous nations are setting ambitious climate goals, they often encounter structural challenges such as energy security, competitiveness in industry, and budgetary constraints that can hinder progress. This situation is particularly evident in major economies like China and India, where the vastness of the climate transition is complicated by pressing economic needs, including the demand for affordable energy and the drive for industrial expansion.
China’s Contradictory Energy Landscape
The energy framework in China exemplifies this contradiction. As the largest coal consumer globally, China continues to expand its coal-fired power capacity to satisfy industrial energy requirements, achieving record levels of new coal plant capacity in 2024. Despite this, solar and wind energy made up 46% of the nation’s total power generation capacity by July 2025. Notably, China leads the world in renewable energy production, battery manufacturing, and electric vehicle exports. On September 24, President Xi Jinping announced a commitment to achieving a 7-10% reduction in emissions by 2035, a target that falls short of the 20-30% reductions some experts deem necessary for aligning with the Paris Agreement. This gradual decarbonization strategy allows China some flexibility to exceed its goals, as it has done in the past. Given that China contributes approximately 30% of global greenhouse gas emissions, this commitment could have significant implications. The next Five-Year Plan, set to be released in March 2026, will provide further insight into whether China’s investments in clean energy will lead to the necessary decline in coal use in the coming years.
Diverse Sustainability Efforts in Other Regions
While China’s sustainability landscape is complex, other emerging economies are also making strides, albeit in a fragmented manner. Southeast Asia is ramping up its solar manufacturing capabilities, while Brazil is enhancing its wind energy initiatives and solar infrastructure, positioning itself as a leader in sustainable agriculture. Additionally, countries like Chile and Argentina are crucial players in the global lithium market, increasing their production, and India is focusing on electrifying its transport sector through regional electric vehicle hubs. The Middle East is also investing in green hydrogen and circular economy initiatives, showcasing a diverse array of sustainable developments across emerging markets.
Climate Finance Trends Among Emerging Markets
Climate finance initiatives among emerging markets are gaining traction, with countries such as China and the United Arab Emirates investing in green projects. These investments are vital for long-term decarbonization and include infrastructure projects like solar installations in Africa and electric vehicle facilities in Southeast Asia. By leveraging regional resources and expertise, these shifts in capital flows are reducing dependence on traditional donor nations and cultivating more resilient, locally tailored sustainable solutions.
Corporate Sustainability Efforts in Emerging Markets
Multinational corporations are playing a significant role in advancing sustainability in emerging markets by enhancing supply chain practices, sourcing low-carbon materials, and implementing stricter standards, particularly in sectors such as electronics, automotive, and consumer goods. Their initiatives contribute to national climate objectives through improved emissions reporting, circular production, and investments in recycling infrastructure. However, many economies, both developed and emerging, face persistent challenges, including limited access to green capital, underdeveloped financial markets, and inconsistent regulatory frameworks. The demand for climate investments remains substantial, with estimates suggesting a need for approximately USD 2 trillion annually to combat climate change effects and USD 400 billion for adaptation efforts. Yet, as of 2022, only USD 72 billion was allocated to adaptation programs, as reported by the United Nations Environment Programme in 2024.
Investment Landscape Evolution in Emerging Markets
The investment landscape within emerging markets is rapidly changing. Our current strategy—favoring emerging market equities and hard currency debt—reflects a tactical view of cross-asset valuation while presenting broader structural momentum for investors seeking environmental and social transition opportunities alongside financial returns. To identify promising sustainable emerging market equities, we focus on companies that exhibit scalable innovation and resilience. These entities are not only responding to global sustainability demands but are also influencing local transitions through efficient technology and resource management. However, past investments in these sectors have often been marked by high volatility. Given the intense competition across various sectors, investors must ensure that companies possess the capacity to maintain strong profit margins and defend their market positions.
Innovative Financing Solutions
In the realm of sustainable fixed income, there is a growing interest in “labelled” green, social, and sustainability bonds, which earmark proceeds for projects yielding positive environmental or social impacts. Additionally, blended finance structures combining public or philanthropic capital with private investment are evolving into catalysts for meaningful change, funding projects such as solar energy farms in North Africa and conservation initiatives in Brazil. These trends also highlight the increasing maturity of emerging market debt markets with environmental and social goals. According to the World Bank, the proportion of emerging market issuers in the labelled debt market more than doubled from 2020 to 2024. Furthermore, microfinance solutions, although generally less liquid than labelled bonds, are increasingly being structured to meet stringent financial standards, enhancing portfolio diversification.
Investing with Purpose in Emerging Markets
For investors looking to deploy capital with a sense of purpose, emerging markets present opportunities that extend beyond mere portfolio diversification and financial returns. They offer a pathway to engage with the next phase of global transformation, where climate goals intersect with innovation, resilience, and inclusive growth. The upcoming United Nations Conference of the Parties (COP) climate summit in Brazil this November will underscore Latin America’s rising leadership role. With its rich biodiversity, clean energy initiatives, and nascent green finance ecosystem, Brazil is poised to play a critical role in nature-based investment strategies. Opportunities in carbon markets, forest conservation finance, and circular economy initiatives are all gaining momentum, allowing investors to align their portfolios with environmental and social impact.
Private Sector’s Expanding Role in Sustainable Finance
While progress varies across different sectors, and economic realities must be taken into account, the increasing involvement of the private sector in shaping sustainable finance—through innovation, partnerships, and risk-sharing mechanisms—offers investors diversified exposure to environmental and social transitions. These developments not only complement government commitments but also signal a broader evolution in the global landscape of sustainable finance.
