India's growth over the next few years is likely to be driven by the government's big infrastructure push. The construction sector represents almost a 10th of the country's economy. India is the second-largest producer of cement in the world.
It would seem an odd time, therefore, for a major cement company to abandon the giant country. Yet that's apparently what Holcim AG of Switzerland, the world's biggest producer of cement, is planning to do.
Nor would this be the only such exit to occur recently. Last September, Holcim sold its Brazil operations for $1 billion. Dublin-based CRH Plc sold its own Brazil operations in 2020 and, before the pandemic hit, was apparently looking for buyers for its subsidiary in the Philippines.
You could, if you wanted, see this trend as a sign of maturity for emerging-market players. Adani Enterprises Ltd. is said to have pulled together $13.5 billion for its bid to take over Holcim's stake in Ambuja Cements Ltd. and ACC Ltd. Holcim's Brazilian assets were bought by local steelmaker CSN Resources SA. Once the deal receives final approval from regulators, CSN will be Brazil's second-largest cement producer.
Adani and CSN or their equivalents — and not developed-world multinationals — will thus reap the rewards of growth in their home markets. Meanwhile, those Western companies can retire some debt and focus on their own home markets, which are also buzzing with activity in the wake of giant pandemic stimulus packages.
But that isn't the whole story. A large part of the reason why exits from emerging markets look attractive is that they help Western companies in hard-to-abate sectors such as steel and cement hit increasingly aggressive sustainability targets — and, conveniently, tap new pools of capital. In September 2020, Holcim committed itself to a more than 20% reduction in CO2 intensity by 2030 and, beyond that, to a "1.5-degree future." A month later, the company announced a sustainability-linked bond issue worth 850 million euros.
In the developed world, corporate net-zero pledges such as the one Holcim adopted are increasingly in favor with both activist investors and ambitious managers. And they have become crucial ways for institutional investors and others to enforce climate-related discipline on companies, even in sectors that were long resistant to change. Green bonds are the carrot; shareholder rebellions, of the sort that CRH is facing, are the stick.
Yet will this strategy really reduce global emissions? Or will it simply drive Western companies to abandon the emerging-market giants such as India and Brazil that are the real battlefields against emissions growth?
Over time, such decisions may diminish the prospects of a net-zero future rather than increase them. Decarbonizing hard-to-abate sectors such as cement will require money and technology. While local companies may not be any less committed to a net-zero future than their Western counterparts, the fact is that they will have a harder time accessing both.
For one, emerging-market governments don't have the resources to help out by properly subsidizing research and development. As a consequence, Indian steelmakers, for example, have consistently spent far less on R&D as a proportion of their revenue than their OECD counterparts.
By contrast, Europe's mammoth green deal includes boatloads of cash to promote low-carbon innovation at home. Just last month, the European Commission handed out 1.1 billion euros ($1.16 billion) to seven such projects — two of which targeted emissions reductions in steel and cement. (The beneficiary in the cement sector was a French subsidiary of CRH, Eqiom SAS.)
Suppose some of these moon shots wind up working. If we really intend a "1.5-degree future," as all these pledges promise, then innovations will need to be deployed swiftly, at scale — and globally, not just in Europe and North America. How is that going to happen if the companies most likely to develop and own these innovations have abandoned the markets where they are most needed?
Activist investors on the lookout for "greenwashing" have to be careful of the unintended consequences of their choices. Companies need to be rewarded for reducing emissions globally, not for scaling down their ambitions to focus on geographies where greener manufacturing is easiest. And pools of finance that claim to be dedicated to investing in low-carbon projects need to start scoping out companies that are operating in places such as Brazil and India. Unless factories in the emerging world have access to the cash and the know-how they need, low-carbon development will remain out of reach — as will a 1.5-degree world.
Mihir Sharma is a Bloomberg Opinion columnist. A senior fellow at the Observer Research Foundation in New Delhi, he is author of "Restart: The Last Chance for the Indian Economy." @mihirssharma
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.