How Will
Climate Change
Affect Emerging

Climate change is progressively trickling into every aspect of life – including our financial markets. Factors like uncertain weather patterns, social unrest, changes in consumer and investor behaviour, new regulation and new costs, have all made global business operations less stable. This is particularly true in emerging markets, where unpredictability was always a given. As the world economy still grapples with COVID-19, is climate change about to trigger the next wave of restructurings?

Insolvency, Restructuring or Transformation

As 2050 draws closer, consumers are increasingly turning away from environmentally problematic businesses and demanding their banks, insurers, and pension providers do the same. In 2019, an alliance of the world’s largest pension funds and insurers, collectively managing $2.4tn, committed to completely decarbonising their portfolios by 20501.

As multinationals begin to contemplate this new reality, it is clear that certain sectors and business models will fare better than others, and some may soon no longer be viable at all. For many companies, it is not so much a question of restructuring, as a choice between radical transformation and insolvency.

Preparing (and Paying For) Net Zero

Countries are differing in their approaches to net zero. At the recent COP26 summit in Glasgow, India became one of the last major economies to commit to net zero emissions by 2070, at least a decade or two later than other emissions heavyweights like the U.S. and China. Companies, too, aren’t navigating the path to net zero in the same way.

While many major multinationals have yet to prepare a net zero transition plan, traders are already quietly weighing up their climate-risk exposures, deploying funds and adjusting equity and debt capital cost accordingly. For instance, BlackRock has publicly committed to putting sustainability at the forefront of its investment strategy.  

The higher a company’s carbon footprint, the higher its cost. There are already signs of projects in certain sectors falling through, as investors pull out over environmental concerns.

In its Green Deal, the EU estimates its coal exports will drop by three quarters, oil by a quarter, and gas by a fifth by 20302. It is also planning a carbon border adjustment, which would significantly impact not only fossil fuels themselves, but also carbon-intensive industries like steel and cement. The World Bank estimates carbon taxes or trading systems now cover 21.5% of worldwide emissions3.

Renewable energy is also getting cheaper – putting further pressure on fossil fuels. In the U.S., solar and wind prices have dropped by more than 70% and 60% respectively, over the past decade.

In short, world markets are preparing for 2050, even if many businesses are not. For these firms, going public with a realistic transition plan is the first step to building consumer and investor confidence. Alongside a plan, businesses must begin incorporating “climate intelligence” into all decision-making.

Oil and Gas

To continue existing in the long-term, companies like major oil require nothing short of total self-reinvention to survive – a fact acknowledged by key market leaders, which have already unveiled detailed transition plans.

Shell has pledged to reach net zero by 2050, and has been increasingly active in renewables, alongside BP and TotalEnergies. Eni, the first major oil company to take a 2050 net zero pledge, in October 2018 signed a three-year partnership with International Renewable Energy Agency (IRENA) to promote renewable energy and encourage global energy transition.

Businesses like Danish energy company, Ørsted – which transitioned from 85% fossil fuel to 85% renewable energy within a decade – show transformation of this kind is achievable.

Between now and net zero, oil companies can dramatically reduce their carbon footprints through simple measures like electrifying operations and harnessing natural gas to prevent flares. BP, Shell, Eni, Equinor, and others have invested in ambitious carbon capture schemes (though these have sometimes prompted accusations of greenwashing). As innovative projects like TotalEnergies’ joint venture with Iraq demonstrate, Big Oil could be a key partner in the global green transition.

Green hydrogen – which is already a key part of Europe’s trillion-dollar Green Deal package – has attracted considerable interest and investment from major oil players such as Shell. This investment could, ironically, help to lower the price of its production, making it a commercially viable option for the global green transition.


Commitments from the COP26 summit point to a mining industry in flux, with 190 countries agreeing to accelerate the phaseout of coal power under the Global Coal to Clean Power Transition Statement. As use of coal – which accounts for around 50% of all global mining4 – continues to decline to reach that goal, many mining businesses are already under pressure. In coming years, growing frequency of droughts and floods will increasingly disrupt copper, gold, iron, and zinc mining, posing a further existential threat to many businesses. Companies also face mounting pressure from investors, clients, and communities to decarbonise and improve environmental practices.

Mines will require major capital investments to fully decarbonise, but many companies could take their first steps now, by embracing renewables and electrifying mines and equipment. Though only around 0.5% of mining equipment is currently electric5, mining companies like Newmont, Codelco, Fortescue Metals Group and BHP have all begun investing in renewables to electrify equipment.


Steel is currently one of the top three carbon dioxide-producing industries6, and carbon pricing like the EU’s proposed Carbon Border Adjustment could significantly impact many businesses.

Further, consumers are increasingly demanding carbon-friendly steel. Car manufacturers like Volkswagen and Toyota are aiming to eliminate carbon emissions from their full life cycle value chain – which includes steel used in vehicles. Recent studies estimate approximately 14% of global steel companies’ potential value is under threat if they do not tackle their environmental impact7.

The industry’s long investment cycle and significant financing needs mean that companies need to tackle this now, before it is too late.

Switching to green hydrogen could, once again, form part of the solution, though this is easier for some businesses than others, depending on factors like site locations, technical capabilities, and regulatory frameworks.

Fortescue Metals, which has pledged to be net zero by 2040, plans to produce 15 million tonnes a year of green hydrogen by 2030, through its new division, Fortescue Future Industries. Swedish steel manufacturer SSAB and Mercedes-Benz announced a joint partnership, in September 2021, to produce CO2-free steel with green hydrogen.

Case Study: Cleary Helps Iraq Fund its Green Transition With Oil

In a recent move, Iraq is harnessing oil production to fund the start of its green energy transition. The unprecedented Gas Growth Integrated Project (GGIP) – a $27bn joint-venture with TotalEnergies – was signed in September 2021, with Cleary Gottlieb representing Iraq’s Ministry of Oil8.

Operated by TotalEnergies, the Ar-Ratawi oil production project, in Southern Iraq, will fund construction of a facility to convert natural gas produced in oil fields (currently flared) into fuel for generation. Ar-Ratawi will also fund a solar power plant and a facility to treat seawater, for use in oil field reservoirs, instead of fresh water.

Though using oil to fund decarbonisation may seem counter-intuitive, Iraq’s oil dependence makes this an effective solution. By working with TotalEnergies to integrate an oil project with gas, water and solar investments, Iraq can begin its green transition without increasing debts – a particular issue, given the volatility of oil prices. Instead, this project promises to lower Iraq’s carbon footprint in the medium-term, using Iraq’s main source of revenue – oil production – to fund the transition.

Andrew A. Bernstein

T: +33 1 40 74 68 00

Polina Lyadnova

T: +44 20 7614 2355

Jim Ho

T: +44 20 7614 2284