Climate change has been described as “the deep water wave” affecting emerging markets, according to Franklin Templeton.
While climate change was a global issue, emerging markets often faced harsh extremes of climate such as drought conditions and melting polar ice caps.
In a webinar on mega trends, Alastair Reynolds, portfolio manager for Global Emerging Markets Strategies at Martin Currie, said: “Climate change is the deep water wave that is having the biggest impact on Martin Currie’s emerging market strategy at present. It’s such an important topic that we explicitly address the impact of climate change on every company we consider for investment”.
This had led the fund to focus on areas such as decarbonisation, renewable energy and electric vehicles. Emerging markets were likely to be major players in these areas, particularly renewable energy manufacturing in China.
“Decarbonisation of the economy is likely to be a key investment theme as the world attempts to lessen the man-made contribution to global warming,” Reynolds said.
“This led us to be relatively early investors in the electric vehicle battery industry. It has also influenced our investments in mining with a focus on raw materials, such as copper, which are required to serve the continuing electrification of our energy needs.”
Pawel Wroblewski, portfolio manager of the International Growth Strategy at ClearBridge Investments, added renewable energy technology would have economic benefits as well as climate ones.
“Climate change is a secular global challenge that could be solved faster than expected due to the commercial availability of technologies such as solar and wind power, batteries for electricity storage and electric vehicles. The transition away from fossil fuels and internal combustion engines (ICE) will happen for purely economic reasons,” he said.
“These new technologies are better, they have come down in cost rapidly over the last decade and they will continue to get cheaper over the next decade, making it very difficult for traditional ICE cars to compete.”
However, it would be dependent on regulation such as carbon taxes to accelerate this transformation.
“Regulation and government policy can slow down or accelerate this transformation. If we keep protecting utility monopolies, for example, and do not tax carbon, things will be a bit slower, but there has already been a system change,” Wroblewski said.
“Consumers increasingly prefer EVs and choose to buy products from companies that care about the environment. We have the Green Deal in Europe and a green infrastructure push in the US, so things are accelerating on the regulatory front too.”
