Emerging markets are where climate change hits hardest. Asia is warming at almost twice the global average;https://wmo.int/news/media-centre/rising-temperatures-and-extreme-weather-hit-asia-hardpeople in the Gulf and the Indian subcontinent face severe heatstroke risks. Droughts and wildfires threaten to destroy crops in Latin America.
Not only is the emerging world affected disproportionately by extreme weather events,https://www.ipcc.ch/report/ar6/wg1/but it is also vulnerable because of its dependence on climate-sensitive industries like agriculture, its rapid urbanisation and its limited financial resources. City populations in the developing world are growing faster than infrastructure investment – with the financing gap amounting to USD2 trillion a year over the next 15 years.https://www.mckinsey.com/industries/private-capital/our-insights/unlocking-private-sector-financing-in-emerging-markets-infrastructure
But there is gathering evidence that emerging countries are taking matters into their own hands. And the world-leading climate adaptation technology emerging markets companies are developing has opened a new frontier for environmental investors worldwide.
Cooling: a hot issue
Asia is particularly vulnerable to the impact of global warming as its vast land areas absorb and retain heat faster than surrounding oceans. The problem gets worse in densely populated areas, where the urban heat island effect causes city temperatures to rise to much higher levels than in rural areas.
This means air conditioning (AC) is becoming a lifeline, not a luxury, for the entire population.
Globally, AC adoption is expected to increase sixteen-fold by 2040;https://www.nature.com/articles/s41467-021-26592-2most of that growth will be concentrated in emerging markets, where capacity remains low but living standards are rising.
Median values per region in 2020
Source: IEA based on Falchetta, G.; De Cian, E.; Pavanello, F.; Wing, I. S. (2024), Inequalities in global residential cooling energy use to 2050
In China, AC ownership rose to a record high of 171 units per 100 urban households at end-2023, up from less than 150 in 2020.https://www.ceicdata.com/en/china/durable-consumer-goods-per-urban-household/consumer-goods-per-100-urban-household-air-conditioners#:~:text=China%20Consumer%20Goods%20per%20100%20Urban%20Household:%20Air%20Conditioners%20data,Consumer%20Goods%20per%20Urban%20Household
Across Southeast Asia, AC stock is set to increase nine-fold between 2020 and 2040.https://www.iea.org/commentaries/staying-cool-without-overheating-the-energy-system
China, India and Indonesia alone will be responsible for nearly half of global cooling energy demand growth by mid-century.
Interestingly, much of that demand is being met by companies based in the emerging world. According to thinktank Ember, China dominates the global AC market, with its share growing to more than half of units sold and installed capacity in 2024 from 36% in 2017.
But demand for air cooling comes with costs. Increased AC use cause sharp spikes in electricity demand, threatening overloads and blackouts, particularly in regions with fragile grids.
In response, AC manufacturers in emerging markets are becoming more innovative, gaining an edge over their advanced economy peers. A clutch of AC firms are developing more efficient models that can keep cool without crashing the energy system.
China’s Gree Electric Appliances, Midea and AUX Group, for example, are developing ACs which run on inverter technology. Inverter ACs use advanced technology to adjust the speed of the compressor motor to deliver the right amount of cooling required. This is in contrast to conventional models which operate with a single-speed compressor – they’re either on or off.
The inverter technology loses less power and saves energy consumption and costs by 60-70% compared with fixed-speed counterparts.Based on data from Daikin, LG
This innovation is particularly important in China, where air cooling was responsible for a doubling in electricity demand growth in August to September in 2024 from the same period in the previous year.
Tighter regulation is also fuelling demand for more innovative AC. China updated its minimum energy performance standards (MEPS) for room air conditioners – among the most stringent in the world – in 2020.https://www.clasp.ngo/research/all/chinas-meps-lead-to-major-ac-market-transformation/
A survey shows the domestic market quickly transitioned with the share of inverter AC hitting 95% in 2021 from 53% in 2017.
Elsewhere, South Korean giants LG and Samsung also are developing dual inverter and AI powered efficient cooling, with smart connectivity and integrated purification features.
District cooling
EM companies - primarily in the Middle East – are also becoming global leaders in another vital climate adaptation technology – district cooling systems.
Modelled on a technology whose roots can be traced to ancient Rome, district cooling systems deliver chilled water from centralised plants to houses, offices and factories. Their main selling point is that they cut energy use by up to 50% compared with traditional air conditioning, which run individual compressors.
The systems also incorporate advances in energy and water efficiency, sustainability and integration with renewable energy sources.
Dubai’s Empower, the world’s largest district cooling services provider, is expanding capacity through large-scale projects such as its Business Bay district cooling plants, which are expected to serve 188 multi-use buildings and skyscrapers across the emirate. The firm uses thermal energy storage, an energy efficient solution that eases pressure on the grid by producing chilled water during off-peak hours, as well as using treated sewage effluent instead of desalinated water.
India's Embassy Office Parks REIT, the largest office property investment company in Asia by area, is also exploring the use of district cooling. The company says district cooling can reduce electricity consumption and save over 40% on operating costs compared with traditional cooling systems.https://www.embassyofficeparks.com/media/filer_public/f6/3f/f63fb2d2-6db9-4545-b4e4-647205836ef3/embassy_reit_esg__2024-25.pdf
Another adaptation technology being developed by EM companies is liquid cooling, which works in similar ways but is used mainly in heat-generating systems, such as data centres and artificial intelligence (AI) infrastructure.
Taiwan’s Wiwynn is a leading developer of advanced liquid cooling solutions for AI computing, notably including designs for next-generation servers such as Nvidia’s Blackwell Ultra GPUs which feature a liquid-cooled and fanless approach for higher performance.
"Much of the leading adaptation technology is being developed by companies in the emerging world. This includes vital technology such as advanced cooling, smart agriculture and energy-efficient infrastructure."
Crop and infrastructure resilience
Emerging markets firms are also at the cutting edge of sustainable agricultural technology.
Rising temperatures and altered precipitation patterns are expected to reduce global crop yields by 8% by 2050. Many of those crop producers are based in emerging countries.https://sustainability.stanford.edu/news/climate-change-cuts-global-crop-yields-even-when-farmers-adapt
To help industrial farms cope with the impact of global warming and extreme weather, emerging markets firms are developing targeted solutions to improve climate resilience.
Brazil’s top biofuel company Raizen, for example, is developing digital agriculture devices to monitor and manage water and pesticide use, helping sugarcane producers adapt to changing climate and mitigate risks.
Emerging economies are also taking the lead on smart infrastructure such as intelligent lighting, energy efficient motors, advanced hazard monitoring technologies and renewable-powered EV charging stations.
China’s Zhejiang Expressway, for example, is a pioneer in the design and building of smart motorways.
Investing for impact and growth
Environmental investors are discovering that adaptation technology is becoming just as important as mitigation tech as the world confronts climate change. What is less obvious is that much of the leading adaptation technology is being developed by companies in the emerging world. This includes vital technology such as advanced cooling, smart agriculture and energy-efficient infrastructure.
All of which means sustainable equity portflios will need to allocate more of their capital to emerging markets.
