This supplementary guidance aims to support investors who are seeking to incorporate EMDE nuances into their net zero investment strategies, consistent with their Net Zero Investment Framework objectives.
The EMDE transition, or lack thereof, poses a global systemic risk to institutional investor portfolios.
Over the last decade, Emerging Markets and Developing Economies (EMDEs) collectively accounted for two-thirds of the world’s energy-related carbon dioxide (CO2) emissions and for 95% of the increase in emissions.
Net zero is a global goal and cannot be met regionally; systemic financial risks posed by climate change can only be mitigated if EMDEs decarbonise too.
The Net Zero Investment Framework 2.0 committed to further work on EMDEs, which this guidance now progresses. It can assist investors who are seeking to incorporate EMDE nuances into their net zero investment strategies, consistent with individual NZIF objectives. It aims to support investors in preventing unintended capital outflows from EMDEs due to net zero investment strategies while also promoting investment in climate solutions in these regions. It considers links to scope 3 emissions and value chain-based engagement strategies.
The guidance includes the following key recommendations for investors looking consider EMDE markets:
- Incorporate ‘fair share’ principles and differentiated country pathways into approaches for EMDEs vs. DMs.
- Carefully consider EMDE definition, recognising the heterogeneity of ‘EMDEs’ as a category.
- Prioritise real economy decarbonisation over financed emissions reductions and consider interdependencies between developed market scope 3 and consumption emissions with EMDE activities.
- Disclose EMDE allocations as part of existing climate reporting processes. Where possible, seek to increase allocation to EMDEs where they represent opportunities for achieving greater real-world decarbonisation and investment to climate solutions.
- Consider providing ‘tilts’ to companies that lead their peers within regional groupings.