Emerging markets provide green investment prospects

It is time to invest in low-carbon industries in the developing world, says Nicola Donnelly of Wheb Asset Management

Nicola Donnelly
Nicola Donnelly

Global action on climate change is warming up, and one of the consequences is a range of new environmental investment opportunities as emerging countries begin to implement green energy policies.

The fresh impetus comes from Cancun, the follow-up to the Copenhagen Climate Change Summit, which has breathed life into international efforts to reach an agreement on climate change prevention and produce a bottom-up framework for action on low-carbon growth.

Critically, it has produced a considerable work programme for the next round of discussions in Durban next year and, although a replacement agreement for the Kyoto Protocol - due to expire in 2012 - still looks distant, there is hope that some sort of agreement might be reached at the last minute. There was broad international consensus on a number of lesser issues, such as launching a Green Climate Fund to accelerate action in developing countries.

What is more interesting for us at Wheb is that developing countries are taking more action on climate change. Countries such as China, India and South Korea are setting ambitious targets, creating exciting opportunities for companies addressing the challenge in emerging markets.

Industries set to benefit include renewable energy, the smart grid and low-energy lighting.

China is likely to account for about half of all global emissions by 2030. The Chinese government is aware of the challenge and is gearing up to become the world's most exciting low-carbon economy. Whereas the last Chinese five-year plan, which ends this year, focused on growth, the next one will look at efficient use of resources and new 'magic seven' strategic industries with a low-carbon focus, such as energy efficiency, clean vehicles and renewable energy.

This is a dramatic strategic shift and a huge opportunity. China expects its 'magic seven' industries will account for about 15 per cent of GDP by 2020. In case anyone doubts China is serious, it closed 2,000 inefficient manufacturing facilities to meet its most recent 20 per cent energy efficiency target. The focus is no longer on growth at any price. Within our portfolio, about a quarter of companies have business interests in China and will benefit.

Opportunities are also emerging elsewhere in Asia. The Indian government is set to introduce a renewable energy certificate trading programme halfway through next year. There will also be an energy-saving certificate trading system to promote industrial efficiency. With such large populations, the numbers involved can be staggering: for example, India aims to replace 400 million incandescent lamps with compact fluorescent ones by 2012 using Clean Development Mechanism credits.

Finally, in South Korea, the Framework Law on Green Growth came into force last year and will drive many new green policies. The South Korean government is focusing on the energy efficiency of buildings and now has a rigorous certification programme. It intends to ban incandescent light bulbs from 2013 and is aiming for a 10 per cent share of the plug-in car market by 2015.

At a time when debt-laden US consumers are losing their status as the engine of global growth to the Chinese, the opportunities available for investing in emerging markets are pretty compelling. Add a focus on companies addressing climate change and it looks like 2011 could be a great year for both investors and international efforts to save our planet.

- Nicola Donnelly is a fund manager at Wheb Asset Management

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