Harnessing Growth: Emerging Markets Equity and the Global Green Transition
January 12, 2022
Read Time 5 MIN
51 billion—this is how many tonnes of greenhouse gases the world now adds to the atmosphere every year by trapping heat and driving up global temperatures.1 This number does not include the growing global population (we are on our way to hitting approximately 10 billion in population by 20502) and the global rising middle class (as incomes increase, energy consumption goes up as well), resulting in global energy consumption expected to increase 50% by 2050.3
Global Solution – Net Zero Economies
Zero4 is where we need to be to stop global temperatures from rising and, as a result, to avoid a climate disaster. Getting to zero is neither the “U.S. problem”, nor the “EU solution”, although we do recognize the global footprint of advanced economies on climate.5 Every region, every country and everyone (including you and me) will have to change the way we do things—from making things, to plugging in, to growing things, to getting around and to keeping warm and cool (please see Exhibit 1).6 Transitioning from the world’s current energy system—an industry worth about $5 trillion a year and the foundation of our modern economy7—will require: 1) understanding the problem; 2) unprecedented innovation; and 3) solid partnerships across the board (i.e. public/private/non-governmental (NGO)/not-for-profit). In other words, this transformation will require all countries to work together towards achieving a common goal of zero emissions. We have never done anything like this before either on the scale8 or in the timeframe9 needed. But it can be done and everyone has a key role to play in making this transition a reality.
Exhibit 1
How much greenhouse gas is emitted by the things we do?
Emissions come from these five (5) activities and we need innovative solutions in all of them.
*Includes 1.9k millions of metric tonnes of carbon dioxide equivalents (mmt CO2) from land use and forestry.
Source: Bill Gates, “How to Avoid a Climate Disaster”, 2021.
Whether a company belongs to the “plugging in” or “getting around” category, the green transition will involve breakthrough solutions across industries and sectors, countries and regions that will essentially transition us from the greenhouse gas-producing tools we currently rely on to a new set of innovations powerful enough to give everyone in the world access to clean, reliable and affordable energy.11 Not surprisingly, therefore, we expect the VanEck Emerging Markets Equity Strategy (the “Strategy”) to invest heavily in the lead players in the global green transition.12
Emerging Markets Equity Regions and Their Journey Towards a More Sustainable Future
As we highlighted in our research on Asia (i.e., China, India), LatAm (i.e., Brazil) and EEMEA – every region and every country is in the process of transitioning. Their journeys will be unique and different, but what matters most is the progress made towards achieving a more sustainable future tomorrow.
VanEck Emerging Markets Equity and Its Role in the Global Green Transition
The global green transition is happening and it is happening now. Everyone has a key role to play in making this transition a reality.
The VanEck Emerging Markets Equity Strategy identifies and invests in forward-looking, sustainable and structural growth companies in emerging markets countries around the world. Given that we are active investors, the above presents a unique opportunity for us to act upon and help facilitate change. As active investors, we seek to engage with our portfolio companies on a regular basis and actively encourage managements to: 1) focus on sustainable business models and decision making; 2) align with environmental (“E”), social (“S”) and governance (“G”), and other, related sustainability agendas that are referenced in the United Nations Sustainable Development Goals (“SDGs”), the Task Force on Climate-Related Financial Disclosures (“TCFD”), Global Reporting Initiatives (“GRI”) standards and the Sustainability Accounting Standards Board (“SASB”), amongst other sustainability frameworks and standards; and 3) properly disclose E, S and G business activity in alignment with those widely accepted international frameworks and standards. We truly believe that a road to sustainability (and, subsequently, to zero) is a journey and every company will get from “Point A” to “Point B” in their own, unique way. Another important point to make is that the Strategy does not view E, S, and G separately or in a vacuum, if you will. Our approach is holistic and all-inclusive, enabling us to capture synergies (interconnections) across factors that are being organically generated as part of the process. In summary, the Strategy invests in E, S and G “improvers.” There are no shortcuts though. Doing the right thing is difficult and it takes time—it requires outside-of-the-box thinking and new idea generation, courage to bring innovations forward, resources to make them a reality and strong partnerships across the board. But long-term, sustainable benefits are so worth it.
Another interesting observation comes from two industry conferences that our team recently attended: the Goldman Sachs Global Sustainability Forum13 and Morgan Stanley’s 2021 ESG Insights Conference.14 Below are some highlights worth sharing, as further support for our statements above:
- Sustainable Innovation | Managements are confident in the continued pace of innovation lowering costs over time.15
- Alignment with International Frameworks & Standards | Global investors should be able to quantify companies’ environmental and social impact—both current and future—driven by regulation and the need to quantify progress towards Sustainable Development Goals, etc.
- Proper Disclosure | Global investors are willing to own E, S and G improvers—with a focus on climate transition and inclusive growth—but need to see greater disclosure of environmental and social metrics to benchmark improvement.
This research piece concludes our 2021 insights and begins the 2022 journey of the VanEck Emerging Markets Equity Strategy towards a more sustainable future. Thank you very much for plugging in, reading and facilitating change by investing in forward-looking, sustainable and structural growth innovators with us.
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DISCLOSURES
1 Source: Bill Gates, “How to Avoid a Climate Disaster”, 2021.
2 Source: The United Nations.
3 Rising middle class is another term for “improvement of global living standards.” Regarding income and energy consumption, they are positively correlated, meaning as income per person goes up, energy consumption per person goes up as well. Source: Bill Gates, “How to Avoid a Climate Disaster”, 2021.
4 Zero is defined as net zero emissions (includes carbon dioxide and other gasses).
5 Recent data indicates that emissions from advanced economies (i.e., the U.S., EU) have stayed pretty flat or even dropped, but many developing countries are growing fast (i.e., China, India). This is partly because richer countries have outsourced emissions-heavy manufacturing to poorer ones. Source: Bill Gates, UN Population Division, Rhodium Group.
6 Source: Bill Gates, “How to Avoid a Climate Disaster”, 2021.
7 Source: Bill Gates, “How to Avoid a Climate Disaster”, 2021.
8 Global cooperation is difficult. The Paris Agreement (2015) was the starting point, proving that global cooperation is possible. The main takeaway was that more than 190 countries agreed and signed up to limit emissions.
9 History shows that it takes a really long time to adopt new sources of energy. For example, it took 60 years for coal adoption to move from 5% of the world’s energy supply to approximately 50%. Natural gas only reached 20% within the same timeframe. Source: Bill Gates, Vaclav Smil, “Energy Transitions.”
10 Passenger vehicles are responsible for approximately 50% of the “getting around” category total (all transportation related emissions). Therefore, scientific and engineering breakthroughs in the Electric Vehicle (EV) space are critical for this category. Source: Bill Gates, International Council on Green Transportation.
11 Source: Breakthrough Energy. 2021.
12 EME.
13 The Global Sustainability Forum was hosted by Goldman Sachs on November 30, 2021. Panelists included 33 companies and investment firms focused on key pillars of innovation, regulation and implementation impacting ESG- and sustainability-focused investing.
14 The 2021 ESG Insights Conference was hosted by Morgan Stanley on December 2, 2021. Panelists included 27 companies focused on ESG and sustainability, innovation and partnerships.
15 Today, “… oil is cheaper than diet coke. It is no accident that fossil fuels are so cheap. They are abundant and easy to move. We have created global industries devoted to drilling for them, processing and moving them and developing innovations around them to keep prices down. Furthermore, their prices don’t reflect the damage they cause (i.e., the green premium)—the ways they contribute to climate change, pollution and environmental degradation when they are extracted and burned.” Source: Bill Gates, “How to Avoid a Climate Disaster”, 2021.
Please note that VanEck offers investments products that invest in the asset class(es) or industries included in this commentary.
*All company weightings are as of December 31, 2021. Any mention of an individual security is not a recommendation to buy or to sell the security. Strategy securities and holdings may vary.
The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources is believed to be reliable and has not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
Emerging Market securities are subject to greater risks than U.S. domestic investments. These additional risks may include exchange rate fluctuations and exchange controls; less publicly available information; more volatile or less liquid securities markets; and the possibility of arbitrary action by foreign governments, or political, economic or social instability.
ESG integration is the practice of incorporating material environmental, social and governance (ESG) information or insights alongside traditional measures into the investment decision process to improve long term financial outcomes of portfolios. Unless otherwise stated within the strategy’s investment objective, inclusion of this statement does not imply that the strategy has an ESG-aligned investment objective, but rather describes how ESG information is integrated into the overall investment process.
ESG investing is qualitative and subjective by nature, and there is no guarantee that the factors utilized by VanEck or any judgment exercised by VanEck will reflect the opinions of any particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and VanEck is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices. Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
Van Eck Associates Corporation
Related Funds
DISCLOSURES
1 Source: Bill Gates, “How to Avoid a Climate Disaster”, 2021.
2 Source: The United Nations.
3 Rising middle class is another term for “improvement of global living standards.” Regarding income and energy consumption, they are positively correlated, meaning as income per person goes up, energy consumption per person goes up as well. Source: Bill Gates, “How to Avoid a Climate Disaster”, 2021.
4 Zero is defined as net zero emissions (includes carbon dioxide and other gasses).
5 Recent data indicates that emissions from advanced economies (i.e., the U.S., EU) have stayed pretty flat or even dropped, but many developing countries are growing fast (i.e., China, India). This is partly because richer countries have outsourced emissions-heavy manufacturing to poorer ones. Source: Bill Gates, UN Population Division, Rhodium Group.
6 Source: Bill Gates, “How to Avoid a Climate Disaster”, 2021.
7 Source: Bill Gates, “How to Avoid a Climate Disaster”, 2021.
8 Global cooperation is difficult. The Paris Agreement (2015) was the starting point, proving that global cooperation is possible. The main takeaway was that more than 190 countries agreed and signed up to limit emissions.
9 History shows that it takes a really long time to adopt new sources of energy. For example, it took 60 years for coal adoption to move from 5% of the world’s energy supply to approximately 50%. Natural gas only reached 20% within the same timeframe. Source: Bill Gates, Vaclav Smil, “Energy Transitions.”
10 Passenger vehicles are responsible for approximately 50% of the “getting around” category total (all transportation related emissions). Therefore, scientific and engineering breakthroughs in the Electric Vehicle (EV) space are critical for this category. Source: Bill Gates, International Council on Green Transportation.
11 Source: Breakthrough Energy. 2021.
12 EME.
13 The Global Sustainability Forum was hosted by Goldman Sachs on November 30, 2021. Panelists included 33 companies and investment firms focused on key pillars of innovation, regulation and implementation impacting ESG- and sustainability-focused investing.
14 The 2021 ESG Insights Conference was hosted by Morgan Stanley on December 2, 2021. Panelists included 27 companies focused on ESG and sustainability, innovation and partnerships.
15 Today, “… oil is cheaper than diet coke. It is no accident that fossil fuels are so cheap. They are abundant and easy to move. We have created global industries devoted to drilling for them, processing and moving them and developing innovations around them to keep prices down. Furthermore, their prices don’t reflect the damage they cause (i.e., the green premium)—the ways they contribute to climate change, pollution and environmental degradation when they are extracted and burned.” Source: Bill Gates, “How to Avoid a Climate Disaster”, 2021.
Please note that VanEck offers investments products that invest in the asset class(es) or industries included in this commentary.
*All company weightings are as of December 31, 2021. Any mention of an individual security is not a recommendation to buy or to sell the security. Strategy securities and holdings may vary.
The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources is believed to be reliable and has not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
Emerging Market securities are subject to greater risks than U.S. domestic investments. These additional risks may include exchange rate fluctuations and exchange controls; less publicly available information; more volatile or less liquid securities markets; and the possibility of arbitrary action by foreign governments, or political, economic or social instability.
ESG integration is the practice of incorporating material environmental, social and governance (ESG) information or insights alongside traditional measures into the investment decision process to improve long term financial outcomes of portfolios. Unless otherwise stated within the strategy’s investment objective, inclusion of this statement does not imply that the strategy has an ESG-aligned investment objective, but rather describes how ESG information is integrated into the overall investment process.
ESG investing is qualitative and subjective by nature, and there is no guarantee that the factors utilized by VanEck or any judgment exercised by VanEck will reflect the opinions of any particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and VanEck is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices. Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
Van Eck Associates Corporation