For individual investors in the UK

Decarbonisation in emerging markets: a new index to track progress

7 Mar 2022

Key takeaways:

The Janus Henderson Decarbonization EM Index analyses the degree and speed of forward progress on decarbonization efforts across emerging markets. The first in-depth report based on the newly developed Index covers Mexico, Central America and the Caribbean, and South America.

Key Takeaways

  • The Index analyzes decarbonization efforts across Emerging Markets against three metrics: renewable energy as a percentage of total energy mix, climate bond issuance as a percentage of total bond issuance, and net zero target dates.
  • In Latin America, the scale of climate bond issuance is small for the region relative to the overall size of the global climate bond market, which now stands at over $1 trillion.1
  • Individual countries in the region have divergent climate bond policies and frameworks, causing market fragmentation and creating obstacles to international investor participation in climate bond issuances.
  • Coordination of policy frameworks and common use proceeds at a regional level is key to accelerating green bond issuance and progress towards decarbonization in Latin America.

At COP26 in Glasgow in November 2021, Janus Henderson convened a panel of industry experts on the topic of Decarbonization in Emerging Markets. Given the panel’s concluding remarks, which focused on exploring the combination of successful initiatives being taken, policy frameworks, and financing need, the firm created an index to track all three of these issues via objective, third-party, open sources.

The Janus Henderson Decarbonization EM Index is an equally weighted index of scores given to three trends: Renewable energy as part of total energy final consumption, net zero target dates established as part of the Paris Agreement-mandated National Determined Contributions (NDCs), and climate bond issuance to date. Each of these trends is tracked following a proxy indicator that we believe can help track the degree and speed of forward progress on decarbonization trends now and in the future.

An in-depth report analyzing the results of the index for Mexico, Central America and the Caribbean, and South America is now available. The Decarbonization EM Index for the region stands at 19.04 as of the end of 2021 given the following:

  • Significant renewable energy as a percentage of the total final energy consumption in several large, heavily populated countries – mainly driven by hydropower.
  • Broad adherence to moving toward the 2050 net zero goal, with some notable exceptions.
  • Limited use to date of climate-related financial instruments to finance decarbonization projects, with some significant single-country issuers, such as Chile, standing out.

In several instances across the region, the natural resource endowments of countries have been already tapped to significant effect to generate renewable power. Solar and wind projects are established at scale in countries such as Brazil, Chile and Uruguay. Long-standing efforts to generate electricity via hydro-electric power plants – often as part of a directed national industrial strategy, as in Paraguay – further contribute to the non-fossil fuel sources of electricity in the region. Finally, biomass is a source of renewable power that several countries, large and small, have directed significant resource toward, especially in Central America and in Brazil.

Further investment in renewable energy capacity generation is also underway in the region, building on legacy projects and expanding into new capacity. According to the latest International Energy Agency forecast, total renewable energy gigawatt production across the region will rise 34% in the next five years, from 278 at the end of 2020 to 374 by the end of 2026.2

Decarbonization in Emerging MarketsRead the full February 2022 Decarbonization in Emerging Markets report covering Latin America.

Additional reports covering other regions’ performance will be released throughout 2022.

 

 

 

 

1 Source: Janus Henderson Investors, Climate Bond Initiative, as at Quarter 4 2021.
2 Renewables 2021 IEA report.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

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