Empowering 4 billion emerging consumers to become carbon neutral and climate resilient

As host of COP 27, Egypt has put a spotlight on sustainable development in Africa and the need to support low-income consumers. Egyptians are highly vulnerable to climate change effects, such as heat waves and dust storms, despite contributing little to the problem. This pattern of paying severely for the climate pollution of richer nations is common across the developing world.

To stop this issue from growing even worse, low-income countries face a seeming paradox. They must navigate rapid growth in consumption as their citizens rise out of poverty into prosperity while maintaining low carbon emissions per capita.

There are over 4 billion emerging consumers looking to rise into the consumer class. Consumers across global growth markets are estimated to have a combined purchasing power surpassing $30 trillion by 2025. Already, emerging and developing markets constitute over 40% of global GDP.

It’s inevitable that the world’s emerging consumers will shape our future. Yet, so much of the climate debate focuses on the developed world. And rich nations have repeatedly failed to shift the balance. In 2009, they pledged $100 billion a year by 2020 to help developing countries manage the impacts of climate change and become climate resilient. They have not reached this target in any year since and the need is only growing. The UN now estimates that $300 billion a year is needed to support climate action in developing countries. The world cannot sit back and hope that these 'top-down' commitments materialise.

Thankfully, there is an alternative. The Green Premium, a concept popularised in part by Bill Gates, has become a focal point for climate investors across wealthy markets, as smart minds attempt to erode that premium through innovation, subsidies and systems change. When the premium on green products disappears, the theory goes, consumers will naturally switch to clean products en masse.

But in many emerging markets, where consumers already pay over the odds for fossil fuel-based products, such as energy, transport and building materials, the green alternative is increasingly the cheaper alternative. In many developing markets a 'Green Discount' already exists and offers an incredible opportunity to scale-up new technologies and business models to combat climate change, fueled only by 'bottom-up' demand.

The scale of this opportunity is staggering. There are 1.8 billion people with low or no-grid electricity access around the world today, many of whom use diesel generators or kerosene stoves to power their homes and cook their food. The challenge put before all of us is to make the journey to electrification for these households a clean one. Thankfully, rooftop solar is already much cheaper in many of these markets, in some cases by as much as 90%, and a number of fast-growing businesses from Sun King, to M-Kopa and D.light, are already making these rooftop kits available to millions of low-income consumers through pay-as-you-go models costing as little as $3.15 a week.

In mobility, a similar trend is sweeping low-income populations. The humble petrol scooter is already an anachronism in many markets, with the running costs of two-wheeler electric vehicles (EV) now up to a third cheaper in some countries. The rapid pace of innovation also means that the upfront cost of a two-wheeler EV is often on par with petrol alternatives. India, Indonesia and other markets are recognizing the potential of these technologies and providing subsidies and enabling regulations to support the transition to clean vehicles.

These green shoots should be supported by the global capital markets to encourage affordable, decarbonised pathways to prosperity for rising low-income consumers. Unlike in developed markets, consumers can leapfrog directly to low-carbon technologies as their purchasing power increases. This is similar to the ways emerging consumers have leapfrogged into advanced technologies in other areas, skipping over landlines to adopt mobile phones and joining the digital banking revolution, rather than applying for traditional financial products.

In emerging markets, there are many sectors where there is not a material 'transition cost' to convert to low-carbon technologies given the historical lack of access. This makes the case for this clean pathway even more economic. Even where there is a modest green premium, green products and services can increasingly offer the best value for money, given their quality, longevity and climate resilience.

Global investors who seize these opportunities will benefit from this growth and their strong financial returns will help scale these solutions further. The alternative of continuing to deprive emerging markets of climate-focused capital will make the global objective of net zero impossible.

Navigating a just transition – where economic inclusion and carbon emission reduction go hand-in-hand – will be a significant challenge for governments, NGOs and investors over the coming decades. By simply shifting the emphasis to the demand side there is immense potential to meet emerging consumers’ needs and make the transition to clean technologies also a transition to a better standard of living for all.

As we move into 2023, private investors must start looking at the climate through the lens of inclusion, a distinctive, but also vital strategy to achieve global climate goals.