Delivering the low-carbon transition in emerging markets and developing economies

21 September 2022

Achieving the greenhouse gas emissions reductions needed to avoid catastrophic levels of climate change requires a rapid and just transition in emerging markets and developing economies (EM&DEs).1 Yet at a time when global action to deliver the transition should be accelerating, sustainable investment flows into these countries have been stalling. Promises of international government support have been made and missed, damaging the goodwill that is vital for progress, whilst insufficient uptake of enabling policies by countries continues to stifle the emergence of a steady and sufficiently large pipeline of investable projects. The ongoing deterioration in global macroeconomic conditions is exacerbating these challenges with many investors taking a more conservative approach to investment in EM&DEs.

However, a review of the impact and achievements of some trailblazing governments, corporates, investors, and civil society across EM&DEs over the last decade also reveals the opportunities that transitioning to a low-carbon economy can generate. In this piece, we provide Macquarie’s perspective on why supporting decarbonisation in EM&DEs is central to global climate change mitigation efforts and share our view on some of the key priorities, opportunities, and solutions in closing the gap in climate finance mobilisation.

Emerging markets and developing economies are critical to meeting the Paris goals

Inevitably, economic growth and development are the overarching priority across EM&DEs, but without a major and rapid shift in their emissions trajectories to enable lower carbon growth, the world will miss the Paris Agreement goal of keeping global warming within 1.5 degrees Celsius of pre-industrial levels 

Two out of every three people in the world live in EM&DEs,2 they represent a large – and the fastest growing – segment of the global population and economy. From 2000 to 2019, the GDP of these countries more than tripled in real terms while greenhouse gas emissions rose by 56 per cent.3 This growth is set to continue as industrialisation and demographic shifts drive increasing demand for energy, infrastructure, food and other products and services.

Source: World Bank, Our World in Data, Macquarie

The chart above shows that EM&DEs are in the early stages of the archetypal development pathway followed by most advanced economies over the 20th century. Many are still in the process of providing universal access to energy and transportation to their population or expanding investment in energy intensive industries. However, they can leverage technological progress, including access to increasingly affordable solar, wind energy and e-mobility, to deliver lower carbon growth than the historical norm. If EM&DE emissions continue to grow on the trajectory experienced over 2000 to 2019, by 2038 they alone will have exhausted the remaining global carbon budget to keep warming at or below 1.5C.4

The energy transition is the linchpin of global decarbonisation efforts but EM&DEs are falling behind

Energy transition asset finance in EM&DEs rose steadily from $US45 billion in 2012 to a peak of $US73 billion in 2018 before declining to $US67 billion in 2021.5 Adding in grids, nuclear, hydropower and other clean energy investment, this figure was $US210 billion.6 This is far below the over $US1 trillion annual clean energy transition investment needed across EM&DEs by 2030 to deliver emissions reduction in line with the Paris Agreement and over $US1 trillion of clean energy investment reached across advanced economies (including China) in 2021.6,7

Source: BloombergNEF, Climate Watch, Macquarie

The financing disparity is starkest when considering countries across the World Bank’s four income groups. Lower-middle and low-income countries, over half the world’s population, accounted for over 20 per cent of global emissions and just 6 per cent of energy transition asset finance between 2010 and 2019.2,3 This trend is particularly concerning given that the lower-middle income countries group includes large and rapidly growing economies like India, Indonesia, the Philippines, Egypt, and Vietnam.

Accelerating decarbonisation requires more ambitious policy action everywhere, especially in emerging markets and developing economies

Trailblazing EM&DEs have demonstrated that effective policy can catalyse significant capital for their transition, even in challenging investment environments - but the replication of these best practices remains insufficient

Whilst most countries have set net zero targets aiming for 2050, or shortly after, none of the world’s large economies are currently decarbonising fast enough to be on a sustainable trajectory towards these goals. More ambitious policy action is needed across most geographies and sectors. This is especially true in EM&DEs, where investment activity is often constrained by higher prevalence of risks such as currency volatility, unstable regulation, and uncertain access to and impartiality in arbitration. Despite these challenges, a growing number of EM&DEs are ranking among the most attractive investment destinations for energy transition investors,8 demonstrating that clear targets and supportive policies can help overcome most investment barriers.

Of all the climate and energy transition policy success stories to date, clean energy auctions have been the most prominent and impactful in EM&DEs. Brazil was among the first countries globally to use large, repeated auction programs to award fixed power purchasing agreements (PPAs) to onshore wind project developers, inspiring many others to follow suit. Auctions enabled Brazil to procure clean electricity at record low prices and to attract significant investment to its domestic onshore wind supply chain. Auctions are now by far the most popular clean energy policy, with over 100 countries using them to procure over 600 GW of capacity as of August 2022.9

Clean energy capacity awarded in auctions, top 10 countries globally (GW)

Source: BloombergNEF

However, the adoption and successful implementation of tried and tested policy mechanisms such as auctions remains insufficient across EM&DEs. 8 in 10 EM&DE governments have adopted a clean energy target, but less than two thirds have complemented these targets with active investment incentives such as auctions or feed-in tariffs.5 In many cases, fossil fuel subsidies and regulation continue to distort competition or favour incumbent energy companies, delaying the switch to clean energy alternatives which could lower energy costs and reliance on imports.

Enabling Environment Action to Unlock Private Climate Finance Mobilisation

Macquarie is a founding member of the Climate Finance Leadership Initiative (CFLI) and was a contributor to its recent report, Unlocking Private Climate Finance in Emerging Markets: Private Sector Considerations for Policymakers. This report built on the experience of private sector lenders, banks, and investors that have deployed billions in sustainable infrastructure across high-income and emerging economies over the past decade to put forward a broad menu of enabling environment policy actions that governments in emerging markets can utilise to unlock private climate finance.

The ongoing surge in fossil fuel prices and extreme climate events reinforces the need for an urgent acceleration in sustainable energy, infrastructure and adaptation investments

The maturity, competitiveness and global reach of the renewable energy industry creates opportunities for all nations to tap into their natural resources, create employment and scale zero-carbon energy supply affordably

A heavy reliance on fossil fuels to meet growing energy demand in EM&DEs would be a major global climate risk. Fortunately, renewables are now the cheapest new build source of energy in most of these countries after steep cost declines over the past decade and these economics are reinforced by the current context of high fossil fuel prices.

International project developers and investors have already been instrumental in the build out of renewables across EM&DEs. Their financing and technical expertise played a significant role in solar and wind capacity growing across these markets at an annual average rate of 29 per cent from 2010 to 2020.10

Greater deployment experience and climate ambition combined with improving enabling environments are helping EM&DEs create good conditions for investment in complex but high potential technologies like green hydrogen and offshore wind. The latter of which is being explored in a growing list of countries with windy coastlines and high energy demand.

Developing offshore wind projects in frontier markets

Corio Generation, a specialist offshore wind business and Macquarie Asset Management portfolio company, is developing offshore wind projects across emerging markets such as Brazil, Philippines and Vietnam, in addition to more established markets. In Brazil, Corio is working with Brazilian renewables developer Servtec Energia to develop multiple projects totalling up to 6 GW. In Vietnam, Corio has a total of 4.5 GW of projects under development with local partners such as FECON, a construction and infrastructure group. In Philippines, Corio is aiming to develop up to five offshore wind projects totaling 3 GW off the coasts of Cavite, Batangas-Mindoro, IIoilo and Guimaras.

As corporate sustainability ambitions rise, providing access to plentiful and competitively priced clean energy has become a competitive advantage in attracting and retaining supply chain investments from international actors

EM&DEs are critical to global supply chains, exporting important commodities, manufactured goods, and essential services. Attracting supply chain investment will boost their export revenue and employment, furthering development ambitions, but increased industrial activity can fuel a surge in emissions if supported by a carbon intensive energy mix.

As more multinational corporations and governments are committing to emissions reductions and some major markets consider carbon taxes on imports to protect local industry, EM&DEs face a challenge and an opportunity. Countries that offer access to plentiful low-carbon energy are likely to attract more long-term international supply chain investments, whilst those slow to decarbonise will see their attractiveness deteriorate.

Commercial and Industrial (C&I) renewable PPAs are a key tool in this context and can be a strong driver of capital to EM&DEs as, beyond emissions reduction, they allow corporates to fix long-term energy costs, reducing exposure to commodity price fluctuations and, in some cases, unreliable grid electricity. Many industrial leaders across EM&DEs are credit-worthy counterparties, making industrial decarbonisation a high-impact, lower-risk opportunity for mobilising climate finance.

Developing large-scale, low-cost clean energy supply for industry

Hydro Rein and Macquarie Asset Management have formed a joint venture to build and operate Feijão, a 586 MW combined wind and solar power project in the northeast of Brazil. Once operational, the project will supply electricity to Paragominas, Hydro’s bauxite mine, with the potential to help further reduce carbon emissions from Hydro’s alumina refinery, Alunorte, by helping it to switch away from coal towards 2030. The project is expected to be an important enabler in reaching Hydro’s target of a 30 per cent reduction of its own emissions by 2030.11 The wind farm is currently under construction with commissioning expected in late 2024 and development of the solar project due at a later stage.

The increasing intensity and frequency of extreme climate events reinforces the need for urgent investment in the resilience and adaption of critical infrastructure across EM&DEs

The need for infrastructure investment across EM&DEs will be unprecedented over the coming decades as countries look to meet the demands of growing economies and population. Private finance can play a central role in supporting this infrastructure rollout. The asset class has a track record of attracting patient, commercial investors interested in supporting activities that deliver high societal value while generating stable returns.

Parallel to rolling out more infrastructure is an urgent need for investment in the adaptation and resilience of new and existing projects against increasingly frequent and intense climate disasters such as flooding, droughts, and extreme heat. Progress on creating the enabling environment to incentivise this investment has been slow, but greater assessment and disclosure of climate risk data is enabling investors and asset managers to better price climate risk and the value of investing in protection against it.

Renewable energy and resilience in the Philippines

In 2017-18, a Macquarie Asset Management (MAM)-led consortium acquired a majority stake in Energy Development Corporation (EDC) – then the Philippines’ largest renewable energy company with 1.5 GW of renewable generation capacity across geothermal, solar, hydropower and wind. Since then, MAM and its co-investors have supported the business as it invests to boost the reliability and resilience of its portfolio against extreme events like typhoons and earthquakes which have disrupted operations in the past. This has included the installation of geohazard early warning systems and robust modelling of potential slope failure and landslide risks. The business has also invested to reconfigure and reinforce pipelines and cooling towers to protect against seismic disruption.

Partnerships and innovation are needed to accelerate decarbonisation across EM&DEs

Climate action tends to be driven at a country level, and country partnerships have an essential role to play in coordinating private and public stakeholders working to accelerate the transition in EM&DEs

Bridging the climate financing gap will require new approaches for coordinating private and public action to tackle some of the larger challenges of the transition and avoid inefficiencies such as public finance being deployed to sectors where it risks crowding out private capital ready to be invested on commercial terms. Country partnerships or platforms are an emerging engagement model that aims to enhance and structure collaboration amongst the various stakeholders working on the transition in EM&DEs, including host governments and regulatory bodies, local and international private businesses and financial institutions, and public and development finance institutions such as multi-lateral development banks.

Country platforms can help stakeholders reach a consensus on the actions and financing needed to decarbonise each sector of the economy, on the set of climate solutions ready to be supported by private finance if policy signals are in place, and which solutions may still require significant capacity building or public finance support. The first climate-focused country platform is the Just Energy Transition Partnership (JETP) for South Africa,12 which was announced at COP26. With more government-led country partnerships under development, the private sector is showing its readiness to support these initiatives, notably through the launch of the Glasgow Finance Alliance for Net Zero statement on Country Platforms and a series of private sector-led country pilots.

CFLI Country Pilots

CFLI is looking to support EM&DEs through the establishment of country pilots - multi-year efforts that unite public and private resources around a narrow set of high-priority, sector-specific opportunities in emerging market countries, with the aim of creating lasting access to private capital for climate action.

The first country pilot in the series is CFLI India, launched in September 2021, co-chaired by Shemara Wikramanayake, Managing Director and Chief Executive Officer of Macquarie Group, and Natarajan Chandrasekaran, Chairman of Tata Sons. CFLI India will seek to accelerate financing for opportunities in enabling infrastructure for renewables; water and waste infrastructure for a circular economy; scaling electric mobility and charging infrastructure; and solutions for decarbonising hard-to-abate sectors, including green hydrogen. Macquarie is also supporting CFLI Colombia, the second CFLI country pilot.

Blended finance and close public-private collaboration are needed to accelerate the deployment of newer climate solutions such as e-mobility, which can address rapid emissions growth in road transport

Private finance cannot substitute for public finance. In many markets, engagement with governments and development finance institutions is needed to determine where public finance can complement enabling policies in mobilising private capital flows. Public finance can play a key role in de-risking sectors for early movers, for example through subordinated debt provision, credit guarantees and blended capital solutions. This is especially true for less mature clean technologies and in riskier countries.

Blended finance lowers the risk profile of projects, bringing down the barrier to entry for private capital and helping mobilise follow on private investment. Through blended finance arrangements, private sector institutions can also benefit from the local market experience, know-how and government relations of public institutions, building their confidence to establish long-term exposure in EM&DEs.

Fast-tracking India’s e-mobility revolution

Macquarie has developed a new blended finance platform, with the Green Climate Fund (GCF), to help accelerate the adoption of electric vehicles (EVs) across India, aiming to help reduce the country’s CO2 emissions and improve urban air quality.13 The platform was officially launched in April 2024 and will be known as Vertelo. The platform aims to introduce unique leasing and financing solutions that reduce the high upfront capital expenditure associated with EVs, tackle impediments around EV charging infrastructure and manage uncertainty around commercial EV performance.

GCF approved a commitment of up to $US200 million of junior equity to help establish this first-of-its-kind EV-focused leasing and financing company in India. Macquarie aims to raise a further $US205 million from institutional investors to capitalise the platform, and over the proposed investment term of 10 years, to mobilise a total of ~$US1.5 billion of capital (including debt finance).

Financial innovation can play a significant role in accelerating climate finance deployment in sectors and countries that have struggled to make progress

A major challenge to closing the EM&DE climate finance gap is catalysing finance into the geographies and sectors that are harder to reach for regular international commercial investors. Most international sustainable infrastructure finance today flows to large projects and markets where investors expect repeated capital deployment opportunities in the future, with the opportunity cost of entering new countries hampering investor appetite for many smaller markets.

Multi-lateral public finance institutions and domestic financial institutions have a major role to play in mobilising climate finance in smaller markets and more challenging sectors given their footprint in these countries and lower exposure to certain risks, such as foreign exchange volatility. This is especially the case for sectors with more complex revenue and counterparty risk structures – such as energy access and home energy efficiency. In recent years, a growing number of development finance initiatives have been launched with a focus on stimulating commercial sustainable investment activity and financial innovation in less developed economies.

Leveraging innovative climate finance in sub-Saharan Africa

UK Climate Investments (UKCI), a £200m Macquarie Asset Management-managed and British International Investment-owned climate finance program, has deployed roughly £120 million into Sub-Saharan Africa. Fund commitments included capital to support the construction of almost 1 GW of clean energy projects in South Africa, cornerstone investment in the first ever dedicated African renewable energy yieldco, and capital to a fund aiming to deliver 10,000 green affordable housing units in Kenya with IFC ‘EDGE’ building standards.

Funds available for sustainable investment globally outstrip investment opportunities, but solutions are needed to channel more of this demand towards sustainable project developers in EM&DEs

Taxonomies are expected to play a major role in helping investors direct their investment strategies towards assets and businesses that make a positive contribution to the transition to a low-carbon economy. Europe, China, Chile, but also EM&DEs including Georgia, Mongolia, Indonesia, and South Africa are some of the countries and regions that have introduced or plan to introduce taxonomies that use labels to guide and measure investment in the transition.

Labels can also play an important role in accelerating climate finance across EM&DEs. The use of standardised project assessment criteria in the awarding of label can help developers and financiers to design their project in a way that maximises visibility and attractiveness for international investors. For investors, robust labels with transparent criteria, backed by reputable entities with a strong technical know-how, can significantly reduce due diligence costs and channel funds to projects in EM&DEs that would typically go to sustainable projects in advanced economies.

Standardising labelling of sustainable infrastructure assets

Macquarie is one of the lead sponsors of the FAST-Infra sustainable infrastructure label14 which is being developed as a consistent, globally applicable labelling system to identify and evaluate sustainable infrastructure assets. The label will facilitate due diligence processes and structuring of sustainable infrastructure investments. This will reduce transaction costs, making it easier for investors to commit capital, of particular benefit in EM&DEs.

Information on all labelled assets will be made available to market participants via a data repository, which will help the market to disclose, report, and measure performance of sustainable infrastructure assets over time. This will also enable consistent reporting under existing disclosure frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainable Finance Disclosure Regulation (SFDR).


In this article, we have provided our perspective on the urgency of tackling the climate finance mobilisation challenge and the success stories that show that large volumes of capital can flow with the right policies and partnerships in place. This is also our experience at Macquarie, and we are committed to work with all stakeholders to help EM&DEs deliver on their transition ambitions.


Dario Traum
Head of the Climate Intelligence Unit, Macquarie

Stephen Moir
Executive Director, Climate Engagement and EMEA Corporate Affairs, Macquarie

  1. In this analysis, emerging markets and developing economies (EM&DEs) are defined as countries eligible for OECD official development assistance (ODA) in 2022/2023 with the exception of the People’s Republic of China. Click to view the full-list in PDF format.
  2. 2021 figures, World Bank Open Data – Visit the World Bank Open Data website
  3. 2019 Greenhouse Gas Emissions, Climate Watch – Visit the Climate watch website
  4. Summary for Policymakers of Global Warming of 1.5°C, IPCC special report – Visit the IICC website. Calculation uses a total carbon budget of 420 GtCO2, the medium confidence (66% probability) value for limiting warming of global mean surface air temperature by the end of the 21st century to within 1.5°C of pre-industrial levels.
  5. “World Energy Investment 2022”, International Energy Agency, 2022 – Visit the IEA website
  6. “Financing clean energy transitions in emerging and developing economies,” International Energy Agency, 2021 - View the report in PDF format
  7. Data provided by BloombergNEF. Note: Figures are based on the IEA classification of EM&DEs which differs from the OECD classification used in other analysis in this piece.
  8. Climatescope: Energy Transition Factbook annual report, BloombergNEF – Visit the BNEF website
  9. “3Q 2022 Global Auction and Tender Results and Calendar,” BloombergNEF, 2022 - Visit the BNEF website
  10. Historic capacity dataset, BloombergNEF – Visit the BNEF website
  12. Six-Month Update on Progress in Advancing the Just Energy Transition Partnership (JETP), UKCOP26, 2022 – Visit the UK COP26 website
  13. FP186: India E-Mobility Financing Program | Green Climate Fund
  14. FAST-Infra (Finance to Accelerate the Sustainable Transition – Infrastructure) Sustainable Infrastructure (SI) Label, Climate Policy Initiative, 2021 – Visit the Climate Policy website