Developing country markets: What impacts could the Paris COP have?

10 September 2015

The CDKN Negotiations Support team give some predictions on what Paris could mean for companies operating in least developed countries.

As the world transitions to a low carbon economy, companies will face both opportunities and obligations. In the words of Christiana Figueres, Executive Secretary of the UNFCCC: “Those companies who want to actually take advantage of that transformation…can have that first mover advantage”.

Many least developed countries (LDCs) are likely to be engines of economic growth in the coming years. They are often overlooked when it comes to global climate action. However countries such as Ethiopia have put forward ambitious climate plans which will shape this economic growth, with others expected to follow suite. By showing ambition these countries, which are particularly vulnerable to climate change, put pressure on the big emitters to act to curb emissions.

As some of the fastest growing economies, with rapidly urbanising populations and growing middle classes, LDCs provide abundant business opportunities. Foreign direct investment (FDI) flows to LDCs rose 14% to $28 bn in 2013. As many of these countries are now planning ambitious action on climate change, the nature and risks of the business opportunities will change. For example, businesses will need to manage the increased risk of climate impacts on their supply chains; Asda recently found that 95% of their fresh produce, sourced globally, is likely to be affected by climate change.

After Paris, countries will focus on the investment needed to deliver their plans, and businesses will bring much of this. The smart money will be ‘climate compatible’ – supporting low carbon economic growth that is resilient to the impact of climate change.

Climate finance is a challenge on the scale of trillions – most will come from the private sector. Developing countries require financial support to implement their ambitious low-carbon development strategies. Climate finance can be direct (such as from the government-funded Green Climate Fund, GCF) or indirect, for example private investment into green growth. Some companies are already pursuing these climate smart business opportunities. For example Apple, Wal-Mart, Coca-Cola and PepsiCo helped launch the American Business Act on Climate Pledge.  The White House expects this to channel $140 billion into low-carbon investments. A significant portion is likely to be directed towards developing country markets given the global nature of their supply chains.

The use of public-private partnerships (PPPs), where public funds lever private capital, looks set to grow.  A number of funds (such as the Green for Growth Fund and the Community Development Carbon Fund) are specifically designed to support PPPs. As PPPs include a risk-sharing mechanism, they could be an attractive tool for the private sector if it wants to invest in riskier regions or countries.

A broad agreement with plenty of unknowns is likely from Paris, providing an opportunity for a proactive private sector. Much of the detail will be left for future negotiations and the private sector could bring its expertise to support the implementation stages. In considering implementation mechanisms both governments and the private sector may be able to discuss win-win solutions to help overcome investment barriers. This is particularly the case in LDCs, where the capacity gap in technical expertise could be filled by businesses and PPPs. Meanwhile, as seen by the landmark announcement by the US and China last November, bilaterals and minilaterals may be on the rise relative to the multilateral UNFCCC process. The private sector will be increasingly influential in these smaller alliances.

Getting a head-start before Paris could help companies create value through green growth in LDCs in the aftermath of the negotiations, setting up a win-win future for business in climate vulnerable nations.

This article was co-authored by Chris Webb, Christina Elvers, Helen Picot, Sam Unsworth and Ben Bostock of the CDKN Negotiations Support team. They are specialists in PwC's climate and development team and support developing Nations participation in UN Climate negotiations. The Climate Development Knowledge Network is managed by an alliance of organisations led by PricewaterhouseCoopers LLP (PwC), and including Fundación Futuro Latinoamericano, LEAD International, LEAD Pakistan, the Overseas Development Institute, and SouthSouthNorth. www.cdkn.org