China and India are jostling for greater geopolitical influence, within the emerging world and beyond. Their ambitions are manifold. For instance, China aims to lead the world in AI technology, India to take China’s manufacturing mantle. But over the long run, they won’t achieve their aims through armed conflict on some high Himalayan glacier.

Rather, they’ll only do so by working towards the same goal of limiting global warming – and, along the way, will ensure the survival of the glacier they both claim.

A major, concerted effort at limiting how much global temperatures rise over the coming decades will pay significant dividends not just in China and India but for emerging economies generally. Were developed and emerging countries to work together in limiting global warming, they could roughly halve the loss in output they face by the end of the century compared to if there were no further climate change.

Emerging economies are much more vulnerable to rising global temperatures than their advanced counterparts. For instance, major cities around the world face annual losses of between USD300 billion and USD1 trillion in output from climate change-related sea level rises, according to modelling by Oxford University’s Smith School, in a report sponsored by Pictet Asset Management. China alone has 15 cities that risk losing as much as 4.7 per cent in GDP per capita per year from rising sea levels.

But this is not where China’s worries about global warming end. Temperatures in the country have been rising faster than the global average. Current projections are for a 13 per cent fall in the country’s crop yields by 2050 compared with 2000.

Meanwhile, India stands to be one of the biggest losers from global warming, risking more than a 60 per cent shortfall in GDP per capita by the end of the century relative to if temperatures stayed the same. A hotter climate threatens the country’s productivity levels. Knock-on effects to education will prove a drag on the accumulation of human capital and thus economic development. Agricultural output will also decline.

In Brazil, climate change will have a major impact on water availability – by the end of this century, two-thirds of the country will be classified as arid. This will hurt harvests and also energy production – hydro power accounts for some 60 per cent of the country’s electricity supply. Similar issues confront Mexico, Indonesia and South Africa.

Of major emerging market economies, only Russia is likely to benefit from rising global temperatures – at least, on the face of it. A melting Arctic would free more of Russia’s coastline, opening the region to trade and the exploitation of the region’s wealth of natural resources. But there’s a caveat. This doesn’t factor in the impact climate change would have on other countries’ demand for Russian goods. Subdued GDP elsewhere would very likely hurt Russian exports.

Read more about the Oxford-Smith paper at this link.

Except otherwise indicated, all data on this page are sourced from the Climate Change and Emerging Markets after COVID-19 report, October 2020.

Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.

Important notes

This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation. Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning.  Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.  Past performance is not a guide to future performance.  The value of investments and the income from them can fall as well as rise and is not guaranteed.  You may not get back the amount originally invested. 

This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.

For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.

Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).

In Canada Pictet AM Inc is registered as Portfolio Managerr authorized to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.

Climate change will cause enormous damage to economies, especially in the emerging world. People in China could be 25 per cent poorer by the end of the century than if there were no further climate change if we do nothing more to slow the rise in global temperature. For Brazil and India the shortfall is likely to exceed 60 per cent, according to modelling by a team of environmental economists at Oxford University’s Smith School in a new report sponsored by Pictet Asset Management.

Globally, that deficit could reach some USD 500 trillion – as a worst case, nearly half of the world’s potential economic output would be lost by the end of the century compared to potential in the absence of further global warming. But this impact won’t be spread evenly. Some of the world’s biggest emerging economies are at greatest risk, particularly if they leave the heavy lifting on slowing climate change to the developed world and do little themselves. Vulnerable to rising sea levels, drought and severe weather events, these countries need to take action to limit climate change.

Fortunately, they increasingly recognise that the effort will be worthwhile. Worldwide, people are aware of the challenges presented by climate change, understanding that it leads to a loss of biodiversity, more flooding, arid farmland, forest fires and the like. And so governments are being forced into action. Thankfully this now makes the worst case a relatively unlikely one.

But merely sticking to current policies doesn’t do enough either.  The loss in potential GDP per capita would be smaller, but not by much. At best the loss in potential GDP per capita might be reduced to 32 per cent from 46 per cent. And that’s without factoring in impossible-to-predict cascading effects where small incremental changes lead to a suddenly catastrophic outcome.

But were countries to act collectively, they could make up a significant chunk of that foregone output. That means action by developed and developing countries.

The Oxford team’s “current policies” scenario is that global warming would be some 2.8 degrees Centigrade above pre-industrial levels if efforts were limited to the richest countries, with 1 degree of that warming having already occurred. Should that temperature increase be cut to 1.6 degrees under an ambitious programme that included emerging economies, potential losses could shrink to a quarter or less.

And right now, there is a unique opportunity for countries, rich and poor, to make radical progress towards limiting the likelihood of catastrophic climate change. The COVID-19 pandemic has been a huge global shock. Public health measures, such as lockdowns, have inflicted huge financial costs. Governments were quick to respond and have committed vast sums to economic recovery. In many cases it makes financial sense for this expenditure to be directed towards measures that mitigate climate change.

Read more about the Oxford-Smith paper at this link.

Except otherwise indicated, all data on this page are sourced from the Climate Change and Emerging Markets after COVID-19 report, October 2020.

Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.

Important notes

This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation. Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning.  Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.  Past performance is not a guide to future performance.  The value of investments and the income from them can fall as well as rise and is not guaranteed.  You may not get back the amount originally invested. 

This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.

For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.

Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).

In Canada Pictet AM Inc is registered as Portfolio Managerr authorized to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.