Emerging Market Debt: Insights through a sustainability lens

January 17 2024. In the last year, a renewed sense of urgency around the energy transition and climate risks saw significant activity among emerging markets in the sustainable bond issuance space, with Latin America emerging as a global innovator.

Ninety One’s Emerging Markets Sustainable Blended Debt portfolio has been assessed against the company’s Net Zero Sovereign Index to show how each country is performing from a ‘Paris alignment’ perspective. In the last year, Ninety One has utilised its Net Zero Sovereign Index across sovereign engagements on climate, providing guidance to policymakers on sustainable bond frameworks in the likes of Chile, Egypt and the UAE, as they look to tap into the growing market for sustainable debt.

Please find a summary of key points across Brazil, Colombia, Côte d’Ivoire, Egypt, Morocco and Zambia, below.

We have seen improvements in Climate Action and Natural Capital under the Lula administration, which point to a positive shift in momentum. President Lula has taken early steps to improve on Brazil's climate commitments, notably with a pledge to halt deforestation and reach net-zero emissions in the country's electricity grid.

The rule of law and independence of key institutions remain two of Brazil’s strengths. Brazil's central bank has also proven its independence and credibility. However, corruption remains endemic, and the legacy of Bolsonaro’s fiscal policy is that long-term fiscal anchors are taken less seriously than they should be.

Net Zero Sovereign Index score: While Brazil scores very well, the underlying picture is mixed. Its emissions profile is good thanks to a high reliance on hydro for its power generation, with non-hydro renewables also increasing significantly in recent years. However, renewable capacity is still below sustainable trend levels and emissions remain above their fair share pathway.

Colombia relies largely on hydro for its electricity generation and has historically had a low level of development in non-conventional renewables. This is now increasing, thanks to the government auctioning long-term contracts for wind and solar. Colombia also submitted new and more ambitious NDCs at COP26, including an objective to increase renewables in the power sector and to transition away from a reliance on oil.

According to the New Climate Institute, Colombia is one of the few countries expected to meet or exceed its 2030 emissions target, and the government is targeting carbon neutrality by 2050. However, Colombia is at significant risk from climate change, especially from increased risk of floods and landslides.

Net Zero Sovereign Index score: Colombia continues to score very well thanks to a relatively high level of reliance on renewables (mostly hydro) for its power generation. Its emissions target assessment is better than peers, but more progress should be made on its pathway metrics.

Côte d’Ivoire performs well across ESG metrics as the government moves to deal with issues such as climate change adaptation and mitigation, as well as improving governance structures. Some 30% of electricity comes from hydro, and the remainder is largely gas fired. The country aims to increase non-hydro renewables to 16% by 2030, reduce deforestation by 50% and reduce the energy intensity of the economy by 15%.

Infrastructure investment has been an important focus, leading to a better business environment. However, human development indicators haven’t kept pace with income growth. Life expectancy is only 54 years, which is almost the same level as in 1990.

Net Zero Sovereign Index score: Côte d’Ivoire ranks well above the average in the index. Its starting points in terms of GHG emissions and energy use are very good and it is targeting non-hydro renewables for 2030. Deforestation is an issue being addressed but is not yet reflected in trends scores.

Egypt has increased its electricity capacity by a substantial 15 Gigawatt, using newly developed domestic gas resources. Although 70% of its energy comes from gas, Egypt has increased its capacity to produce electricity, with a greater focus on renewable energy, which it targets to account for 42% of overall production by 2035. Egypt wants to become a regional gas hub and export some of its gas to neighbouring countries.

Its regulatory framework has improved, enabling major energy producers to participate in the industry. An ambitious infrastructure build out is underway to establish new cities and reduce population concentration. There have been positive dynamics around inclusive growth and the government has announced ambitious initiatives targeting women and youth inclusion in the workforce.

Net Zero Sovereign Index score: Egypt ranks in the middle of the index. While the use of renewables has not increased in the last five years, the government has committed to raising the share substantially by 2035.

Morocco is engaged in a very ambitious climate push, with US$30 billion allocated for investment in renewable energy over the next 10. The country is ambitiously targeting 52% renewable energy and 23% gas by 2030 (currently 35% of electricity is renewable). As the first North African country to join the International Energy Agency to move to cleaner power, Morocco ranks well on biodiversity, air quality and management. Morocco has also successfully invested into agricultural infrastructure, improving food security.

Morocco outperforms its peers with regards to access to quality public services, but more work is being done to improve quality outside of the commercial hubs of Casablanca and Marrakesh. Access to basic needs and housing has become much more widespread, with a large decline in the poverty rate.

Net Zero Sovereign Index score: Morocco scores well in the index universe. It has reasonable scores on emissions and energy use, especially relative to fair pathways. Once the ambitious renewable energy plans come to fruition, the scores should improve further.

Zambia is very reliant on hydropower (70% of total electricity supply) and the government is yet to make a significant leap away from hydro into more renewable resources. Zambia is taking renewable energy seriously and is engaged in increasing solar projects. While efforts are constrained by sovereign financial stress, it shows political intent on the part of government.

While there remains an infrastructure gap, Zambia has made progress, notably on road and electricity infrastructure. There has also been improvement on education and healthcare provision, with dropping maternal and child mortality rates. Following Hichilema’s victory, Zambia is becoming a country where the rule of law is respected, civil society is allowed to speak freely, and economic policy will move in right direction under an IMF programme.

Net Zero Sovereign Index score: Zambia scores well within the index universe. Emissions and energy use are low on a per-capita basis, and progress relative to its fair pathway is good. The high percentage of hydro supports the renewables score.


For further detail and additional analysis across the EM debt sustainability space, please visit Ninety One’s EM Sustainable Blended Debt: Sustainability Report 2022/23.