In their efforts to decarbonize, emerging market (EM) countries are increasing their spending in technological developments. Daniel Graña, Matthew Culley and Matt Doody discuss where they see potential opportunities, particularly in the electric vehicle (EV) space.

Key takeaways

• Decarbonization efforts in emerging markets are creating potential opportunities as countries increase spending on technological development. Of particular interest is the EV space.
• As EV penetration increases, we expect to see greater demand and higher sustained prices for critical and green metals.
• Those battery cell manufacturers that have access to critical raw material supply, scale and technology will be competitively positioned going forward.

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Matt Doody: Our team sees a multitude of opportunities as the emerging markets decarbonize. We are particularly excited about areas of accelerating spend in technological development. Potentially attractive looking pools are everything with respect to renewables, wind, solar, hydrogen, EVs [electric vehicles], and fuel cell technology and energy storage.

Matt Culley: Similar to what we see in the solar and the wind industry, there is actually a richness of opportunities in the entire EV [electric vehicle] ecosystem. Today, there are three EV startups that have recently gone public. These are companies in the private domain, but over the last several [they] have raised tens of billions of dollars in the public markets as they have gone from concept all the way to full-blown scale manufacturers of EVs.

Doody: As EV penetration increases, we expect to see a substantial pickup in demand for those critical and green metals. As these critical metals become of increased importance, we expect to see higher sustained prices for longer. Those battery cell manufacturers that have access upstream to critical raw material supply, scale and technology will be competitively positioned going forward. So too will those minors that have access to good projects in these preferred metals.

Culley: We think that investors do need to think differently about EVs versus what they did in the internal combustion engine. We think about delineating the opportunity set between hardware and software in that we think there is going to be distinct sources of a competitive advantage that will differentiate the winners and losers in each sector.

Doody: As the calculus surrounding climate change has become increasingly clear, we have started to see great action being taken by both business and political leaders around the emerging market landscape. Most notably, at the country level, China has come out and set ambitious targets for carbon neutrality by 2060 and peak carbon by 2030. India has followed in its footsteps and has now outlined a path to net carbon zero by 2070.

Unfortunately, greenhouse gas emissions have been rising at an alarming rate and the expansion of several emerging market economies has been a critical driving force behind this. China, for its part, is now the largest emitter globally by far, producing over 10 billion tons of CO2 per year. This is two times the United States, the second-largest emitter, and three times India, the third-largest emitter.

If we are going to successfully decarbonize and mitigate the harmful impact of climate change, emerging market countries and economies are going to have to play a vital role.

 

Emerging market investments have historically been subject to significant gains and/or losses. As such, returns may be subject to volatility.

Environmental, Social and Governance (ESG) or sustainable investing considers factors beyond traditional financial analysis. This may limit available investments and cause performance and exposures to differ from, and potentially be more concentrated in certain areas than, the broader market.