Last week, the most influential leaders from around the world came together in Hamburg. Among the topics of discussion at G20 was that of the participating countries’ efforts to mitigate climate change, including a reaffirmation of 19 of those countries to the Paris Climate Accord. Of course, the United States recently shocked the world when President Trump announced its withdrawal from the Paris Agreement, in stark contrast to the other member countries. “What becomes clear in this declaration is the dissenting view of the United States, but I am gratified to note the other 19 members of the G20 say the Paris agreement is irreversible” said German Chancellor Angela Merkel on July 8th. “We feel committed to what we agreed on and should be implemented as quickly as possible.”
Setting ambitious Environmental, Social and Governance (ESG) goals is a critical first step in making progress towards a move livable world for us all. But more important than goals, particularly in a time when 71% of global GHG emissions can be attributed to only 100 corporations, are the actual outcomes that a corporation, bond issuer, or sovereign nation achieve in reaching their impact goals.
In our Sovereign Scorecard of 215 nations and territories, we measure countries’ performance on 24 impact metrics – inspired by the UN Human Development Index, but adding additional metrics and themes such as environment, including carbon dioxide emissions (CO2) per person. This Emissions Intensity metric captures a normalized look at the amount of pollution each country is responsible for and can be used as a proxy measurement of their overall greenhouse gas emissions. When we highlight the G20 countries specifically we can see that India, Brazil and Indonesia are the least intensive on this metric – with high populations of 1.34 billion people in India, and 263 million people in Indonesia, while Brazil’s 211 million people have more than a decade of ethanol and hybrid vehicles for transportation. The worst emission offenders per capita are Australia, the United States and Saudi Arabia – with industries and personal lifestyles that if followed by the rest of the world would be overwhelmingly taxing beyond our biocapacity. By this measure at least, it is clear that the United States’ leadership in GDP and income per person has come at the expense of being extractive of the environment and intensive on polluting emissions, and thus a global laggard. Overall, new energy solutions are required to have a livable environment.
Of course, the sheer size of the populations of countries such as India and Brazil could skew interpretation of their performance based on a per capita measurement, and so we also look at a second energy intensity metric that measures GDP per unit of energy (in oil equivalent). This measure more accurately captures the energy efficiency of a country’s economy. When analyzing the G20 countries in this way, India and South Africa jump out as leaders with Russia and China close behind. India and China have positioned themselves to be leaders in the renewable energy transition over the next decade. While Russia has the world’s largest natural gas reserves globally today, legislation passed in 2008 put pressure to create vast energy efficiency improvements across sectors. The goal to reduce Russian GDP energy intensity by 40% by 2020 influenced investments in Russian renewables and development of energy efficient buildings and homes. As countries like Russia set goals to increase their energy efficiency, they are doing so at a time when renewable energy is more attractive than ever (lower prices, more accessible, integrate with energy efficiency software), and nations have an opportunity to accelerate their economies using cleaner and more sustainable energy sources — from solar to wind to energy storage, as well as energy efficiency solutions.
What does this all mean for impact investors? The burgeoning renewable energy markets across the globe allow for strong investment opportunities outside of the United States. According to an Ernst & Young report published earlier this year, China and India take the top rank positions in the “Renewable Energy Country Attractiveness Index,” whereas the United States dropped to third place due in part to policy changes that make renewable energy investments less favorable. By focusing attention only on domestic opportunities, investors may miss the boat on some of the countries that are best poised to lead the global clean energy market in the future.
|Rank||Renewable Energy Country Attractiveness Index*|
Want to know more about how G20 countries and 200 other nations stack up according to our HIP Ratings of sovereigns and their bonds? Are you curious about the underlying data and how we use it to calculate an impact rating? Contact HIP to learn more about HIP Ratings, how countries rank on impact — and what mix of sovereign bonds would increase the impact of your portfolio.
Angela Merkel at G-20: “I deplore” U.S. leaving Paris climate accord. (2017). Cbsnews.com, from http://www.cbsnews.com/news/angela-merkel-donald-trump-paris-agreement-i-deplore-this/
recai: Renewable energy country attractiveness index. (2017). [ebook] Ernst & Young. Available at: http://www.ey.com/Publication/vwLUAssets/EY-RECAI-49-May-2017-index-at-a-glance/%24FILE/EY-RECAI-49-May-2017-index-at-a-glance.pdf.