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Hakone, Japan.
Opportunities outweighing risks in emerging markets
By: Shamaila Khan & Urs Antonioli
From the Reserve Management Seminar 2024
What are the prospects for emerging-market fixed-income and equity investments in 2024 and beyond?
Factors such as the higher-for-longer interest-rate environment, national elections and restrictive regulatory frameworks have combined to create challenging conditions for investors in emerging markets in 2024. However, despite these issues, there are a number of reasons for optimism in both fixed income and equities.
''Emerging-market fixed-income investments in a higher-for-longer rate environment ''
The prospect of interest rates remaining elevated for the foreseeable future is not necessarily bad news for sovereign debt in emerging-market economies. Looking at the higher-rated countries, most are net external creditors: that is, they have greater levels of dollar-denominated assets than dollar-denominated debt. They tend to have very long duration debt – so they only need to refinance a small proportion of their overall debt at today’s higher rates. Over the past two years, we have only seen significant increases in risk premiums on the lowest-rated debt, with premiums on higher-rated sovereign debt remaining largely unaffected.
Our constructive view on this asset class was further strengthened by a stress-test analysis that we carried out in 2023: this found a low probability of default among emerging-market countries in the event they had no access to debt markets for two years.
This analysis is complemented by the fact that policymaking in distressed countries has improved considerably in recent years, to the extent that it is now far easier for politicians to say they have little choice but to implement potentially unpopular fiscal policies due to the requirements imposed by the International Monetary Fund (IMF). At the same time, these nations have benefited from the availability of cheaper funding from the likes of the IMF and the World Bank.
As well as monetary policy in the US, China’s economic performance tends to have a significant impact on emerging markets. In the emerging-market fixed-income, around 60% of countries are commodity exporters that in the past have been vulnerable to slowing growth in China. However, since the Covid-19 pandemic, we have seen commodity prices rise despite difficulties in the Chinese economy. This has been for two reasons: first, a general lack of investment in commodities has led to a reduction in supply, and second, increasing levels of decarbonisation have driven rises in demand for the metals and minerals needed in technology such as solar panels and electric vehicles.
This year, we have already seen new debt issues oversubscribed and performing well in the secondary market: this is usually a precursor of money coming into emerging-market funds. Meanwhile, yields remain notably attractive relative to historical levels. Taken together, these factors mean there is a significant return opportunity in this asset class at present.
''Equity investing in emerging markets: grounds for optimism''
Head of Emerging Market Equity, UBS Asset Management, Zurich
While fixed-income investing in emerging markets is more of a bet on a nation’s performance in exports, equity investments are geared to a much greater degree to domestic growth. Therefore, emerging-market equities have been a huge disappointment on the whole over the past decade. But looking at the major economies individually gives a better idea of what factors may be able to support returns in the years ahead. Emerging markets are not homogenous, and an active investment approach can help investors to take advantage of opportunities as and when they arise.
China has underperformed in recent years due to a number of problems, including the risk of sanctions, regulatory interference and problems among the country’s real-estate companies. We believe the authorities have taken the right measures to stabilise the latter sector., However, a more general issue is that, despite high retail and corporate savings ratios, there has been a lack of investment because of low confidence levels – for example, there is a lot of uncertainty around the regulatory framework in China. Chinese companies are adapting though: for example, the threat of sanctions has led many to set up facilities elsewhere in the region.
The situation in India is brighter. While the outcome of the recent election created an element of uncertainty, we believe the overall impact will be positive. According to our forecasts, India’s growth over the next decade should be around 5% to 6% a year, which could make even some of today’s expensive-looking companies appear attractive and help the Indian market to extend its recent period of outperformance.
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The AI-Powered Nonprofits Coding a Greener Future
By: Kevin Barenblat & Naomi Morenzoni
Artificial intelligence has enormous potential to help humanity fight climate change. These organizations are already showing the way.
In 1970, Songs of the Humpback Whale was released. The album was one of the first sound recordings of the humpback whales’ song and became an anthem for the environmental movement. It was credited with producing the Marine Mammal Protection Act of 1972 that helped some whale species escape extinction.
At the time, scientists didn’t know what the melodic sounds of whales meant or what whales were saying to each other. But today, a half-century later, that could all change thanks to AI-driven breakthroughs. In May of 2024, scientists published a discovery that just might lead to one of the first opportunities for interspecies communication. With the help of AI-powered nonprofits, like Earth Species Project and Project CETI, we now know that sperm whales have a more sophisticated, expressive, and complicated communication than previously thought.
If the mere sounds of whales led to better environmental protections decades ago, what might be possible if humans could talk to them? Nonprofits decoding non-human communication with AI are just one example in a renaissance of AI-powered nonprofits (APNs) using AI to protect biodiversity and fight climate change.
With the rise of generative AI, debates over its risks and downsides have often dominated the conversation. While companies need to take these risks seriously and prioritize sustainable and responsible AI development, we can't overlook the benefits that AI can bring to the fight against climate change. A 2023 BCG report found that AI has the potential to unlock insights that could help mitigate 5 percent to 10 percent of global greenhouse emissions by 2030.
Fast Forward’s research of how APNs are using AI to fight climate change found a vast range of use cases, including decarbonizing supply chains, tracking pollution, predicting disasters, optimizing sustainable farming practices, protecting biodiversity, and equipping policy makers with better data.
Despite this range of use cases, the number of nonprofits using AI today is limited. According to Salesforce data, 65 percent of nonprofits are open to AI and need to learn more, but only 12 percent of nonprofits are currently using AI in their organizations.
In this article, we’ll explore themes from the research and highlight three case studies of climate-focused nonprofits who are using AI to monitor data, to serve as a coach channeling expertise, and to provide research assistance through better organization. This piece provides practical guidance for both climate-focused nonprofit leaders looking to understand how to harness AI as well as climate-focused funders seeking to learn how to support their AI-powered—and would-be AI-powered—grantees.
Our goal is to showcase the APNs leading the way and empower other organizations to accelerate AI solutions to address climate change.
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Renewables overtake fossil fuels to provide 30% of EU electricity
By: Ajit Niranjan - The Guardian
Report finds 13 member states generated more energy from wind and solar power than coal and gas for first time in 2024
Wind turbines and solar panels have overtaken fossil fuels to generate 30% of the European Union’s electricity in the first half of the year, a report has found.
Power generation from burning coal, oil and gas fell 17% in the first six months of 2024 compared with the same period the year before, according to climate thinktank Ember. It found the continued shift away from polluting fuels has led to a one-third drop in the sector’s emissions since the first half of 2022.
Chris Rosslowe, an analyst at Ember, said the rise of wind and solar was narrowing the role of fossil fuels. “We are witnessing a historic shift in the power sector, and it is happening rapidly.”
The report found EU power plants burned 24% less coal and 14% less gas from the first half of 2023 to the first half of 2024. The shift comes despite a small uptick in electricity demand that has followed two years of decline linked to the pandemic and Ukraine war.
“If member states can keep momentum up on wind and solar deployment then freedom from fossil power reliance will truly start to come into view,” said Rosslowe.
Europe is among the biggest historical polluters that have contributed the planet-heating gas that has made extreme weather more violent, but it also has some of the most ambitious targets to clean up its economy. Since Russia’s invasion of Ukraine, European leaders have sped up their shift to renewables with stronger rhetoric and looser permitting rules.
But while solar power has boomed, the wind industry has struggled with high inflation on top of continued opposition from politicians and the public. The EU installed a record 16.2GW of new wind power capacity in 2023, according to the lobby group Wind Power Europe, but this was about half of what was needed that year to meet its climate targets for the end of the decade.
Scenarios modelled by the Intergovernmental Panel on Climate Change (IPCC) and International Energy Agency show that most of the electricity needed to power a clean economy will come from rays of sunlight shining on panels and gusts of wind spinning turbines.
The Ember report found 13 member states generated more electricity from wind and solar than from fossil fuels in the first half of the year. Germany, Belgium, Hungary and the Netherlands hit that milestone for the first time, the authors found.
Andrea Hahmann, a scientist at Denmark Technical University who co-wrote an IPCC report chapter on energy systems, said the development was “significant but not surprising”.
“Strong winds were prevalent during the first six months of 2024 in northern Europe, where most wind energy is generated,” she said. “The ‘crossing of the lines’ demonstrates that the EU’s electricity transition is possible, and we should not give in to pessimism. The renewable energy targets that must be met are substantial but achievable with the proper policy measures.”
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Costly climate ‘solutions’ look like more pollution in Louisiana’s ‘Cancer Alley’
Corporations and politicians are pushing carbon capture despite big questions over its value as residents in the southern ‘petrostate’ fear the worst
It was a muggy morning in late April when a handful of local residents and grassroots organizers huddled in a church parking lot to strategize, before knocking on doors with information about the latest environmental threat facing St Rose, a predominantly Black community in Louisiana’s “Cancer Alley”.
It was not the first time Kimbrelle Eugene Kyereh had campaigned for better regulation of the choking sprawl of fossil fuel and petrochemical facilities that surround St Rose – and countless other communities up and down the Mississippi River.
But this marked the first time residents have grappled with a toxic chemical facility that its operators claim to be a clean energy innovator and that stands to benefit from taxpayer subsidies and unprecedented tax credits supposedly designed to tackle the climate emergency.
Kyereh informed neighbors that international investors want to build a “blue” ammonia and “clean” hydrogen plant across the fence line – on the same site as a crude oil storage and export terminal which residents say spews noxious fumes that make it hard to breathe.
Ammonia is a toxic substance made by stripping hydrogen from fossil gas and nitrogen from air, and is mostly used for synthetic fertilizer. The St Charles Clean Fuels (SCCF) project claims it will capture and sequester the carbon dioxide (CO2), the planet-warming greenhouse gas generated as a byproduct, making its ammonia cleaner or “blue”.
In theory, the waste CO2 will be compressed, transported in special pipelines and injected deep into underground rock formations for storage, ostensibly forever, for which the company would qualify for federal tax credits for each ton of carbon stored. The SCCF project says that the ammonia will be sold for fertilizer feedstock or so-called “blue” hydrogen – promoted as a “clean” fuel by the fossil fuel industry, which also earns tax credits for it.
“The SCCF low carbon approach is expected to reduce CO2 equivalent emissions by more than 90% compared to traditional ammonia production … Financing and building infrastructure that deploys cleaner solutions like blue ammonia is essential to fighting climate change,” said a spokesperson for the SCCF project, which is majority-owned by a Danish investment company.
But industry claims about the climate credentials of “blue” hydrogen and ammonia have been debunked by scientists without fossil fuel ties. The process depends on fossil gas, a major driver of global heating, as a raw material and energy source – which both emits CO2 and leads to substantial upstream emissions of methane, a powerful greenhouse gas.
“‘Blue’ hydrogen is a marketing scam, pure and simple. The facts do not back up industry hype,” said Robert Howarth, professor of ecology and environmental biology at Cornell University, and co-author of a seminal study discrediting industry claims about hydrogen.
“The best any plant has done for net CO2 capture is 25% to 30%, and that’s before the very potent methane [leaks]. The 90% capture rate the industry claims is pure nonsense,” Howarth added.
In addition, ammonia production generates air pollutants such as nitrogen oxide, particulate matter and volatile organic compounds – a toxic mix already choking residents in Cancer Alley. CO2, itself an asphyxiant and intoxicant, also poses a threat as leaks can cause injury or death by replacing oxygen in the air – which makes St Rose residents Randy and Dedra Moses fear for the safety of their grandchildren.
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