Shifting Climate, Shifting Opportunities

Climate change—like any type of disruption—has disparate impacts on people, places and things. It can also have disparate impacts on corporations and investments. Krzysztof Musialik, senior vice president, Franklin Templeton Emerging Markets Equity, explores how climate change has impacted the global economy, and has created new potential investment opportunities in the realm of the emerging market landscape.

We truly live in a global economy, and climate change—including its causes and potential impacts—has been one of the biggest issues of discussion and debate today. It’s a galvanizing topic, but one that has the potential to create many disruptions around the world, as well as potential opportunities. And emerging markets are front and center.

The Rise of Emerging Markets

One thing that’s not up for debate is the rapid rate of growth of emerging markets over the past few decades, leading to some impressive transformations. However, this explosion of growth and development in emerging markets has also led to increasing pressures on the environment. China is now regarded as the second-largest economy in the world only behind the United States and is a global leader in a number of areas. In the 40 years since Deng Xiaoping led China’s economic reform to embrace a “socialist market economy,” there has been tremendous growth in wealth in China, moving millions of people out of dire poverty and dramatically improving the quality of life in the country. This, of course, has been positive, but rapid growth and industrialization can come with consequences, particularly in areas such as environmental degradation and climate change.

Of course, China certainly isn’t the only emerging market to experience rapid economic growth and development. Of the top 10 largest economies today, three are in emerging markets, and growth rates in emerging markets overall are expected to outpace those of developed markets this year and beyond.1

Market liberalization and globalization have led to tremendous growth in consumption both in emerging and developed markets. (See chart below)

Growth of a Global Consumer Culture

Once largely a developed-market designation, a new middle class has emerged in emerging markets. And these consumers have more discretionary income to spend. Take air travel, for example. In 1978, there were 378 million global airline passengers—today, there are 4 billion.2 In 1978, China saw 1.5 million passengers travel by air, while 2017 saw more than 551 million air passengers. The growth in air travel comes with corresponding consequences—more aircraft results in more fuel usage and more greenhouse gas emissions, which can be detrimental to the environment.