Strategy Note /

The 'E' in ESG: 8 charts showing greenhouse gas emissions in emerging markets

  • Total greenhouse gas emissions determine which countries matter at global summits like COP26, ie China and India from EM

  • But per capita and per $ of GDP metrics and their change over the past decade or two matter more for ESG investors

  • Big EM polluters are hydrocarbon producers and advanced economies. China's declining carbon intensity may surprise some

The 'E' in ESG: 8 charts showing greenhouse gas emissions in emerging markets
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
17 October 2021
Published byTellimer Research

Global negotiations on climate control at events such as COP 26 (the UN Climate Change Conference) are determined by a few countries and political blocs which account for the majority of greenhouse gas emissions: China, US, EU, India, Russia, and Japan collectively account for 67% of pre-Covid global emissions and their six voices count for more than all others.

For ESG investors, greenhouse gas emissions on a per capita and on a per unit of GDP basis (carbon intensity) are more relevant than aggregate measures; otherwise one would simply invest in smaller countries and avoid the larger ones.

In this report, we look at these measures across emerging and frontier markets in terms of the latest snapshot (is the metric good or bad) and the change over time (is the metric improving or worsening).

Unsurprisingly, on these measures the biggest polluters in EM are hydrocarbon exporters and the more advanced economies (with industrialised manufacturing and richer consumer bases). But there are, perhaps, more surprises on the direction of change.

For example, the carbon intensity of China has declined at an accelerating rate over the past two decades. And while China's emissions per capita continues to grow, in common with most of EM, the pace of growth is decelerating, a more rare occurrence. These trends are rarely highlighted in the mainstream portrayal of China as almost a 30% driver of global emissions, with about 60% of its primary energy mix coming from coal.

ESG investing has little meaning if it is not applied to country allocation decisions in investment portfolios: concentrating on corporates alone misses the wood for the trees. Within the environmental part of ESG, at the country level, greenhouse gas emissions (carbon dioxide, methane, nitrous oxide, and certain fluorinated gases) are one of a number of factors, eg deforestation, freshwater consumption, plastic use, recycling, which can be analysed in the course of ESG country-screening.

(1) Global emissions control depend on negotiation between two to, at most, six voices; most countries are marginal

(2) Aggregate Emissions not a useful ESG investing metric; else simply invest in small countries and avoid large ones

(3) Per capita emissions more useful for ESG investing

(4) Emissions per capita and last ten year change in EM

(5) Emissions per capita decelerating in most EMs but, ex-China, may be due to population growth not emission control

(6) Emissions per $ of GDP is also useful for ESG investing

(7) Emissions per $ of GDP and last ten year change in EM

(8) Carbon intensity of most of EM continues to fall but at a decelerating pace, with China one of the exceptions

The charts above are based on data from CAIT (World Resources Institute) and Global Carbon Project. Our curated version of this data is included in the full version of our Emerging Markets Investability Matrix and in Excel via this link.

Download .xlsx

Related reading

Biden's Climate Summit: The US-China cold war and the ESG context, April 2021

ESG needs to focus on countries, not just companies, October 2021

Carbon credit markets (Huckle), October 2021