Emerging markets will be the test bed for decarbonization

Emerging markets will drive the majority of global population growth, infrastructure expansion and economic activity in the coming decades, making them a critical testing ground for climate solutions. Accordingly, investors who focus solely on decarbonizing developed markets may be overlooking some of the most attractive opportunities - those that offer better margins, broader reach and faster adoption curves, it writes. weforum.

Emerging markets and developing economies (excluding China) contribute approximately a quarter of world GDP, but to date they have attracted only 14% of global climate finance flows. To stay on a net zero trajectory, these economies will need an additional $450-550 billion per year in external financing by 2030 - an increase of a full 18 times.

Climate-friendly business models are gaining momentum globally

This historic underinvestment ignores a fundamental fact - that viable, emission-reducing and/or adaptation-ready business models are already gaining momentum in emerging markets around the world.

These markets reward cost efficiency, funding responsiveness, and product-market fit. A separate class of innovation emerges-solutions built under constraint from the start but planned for long-term viability. This is called informed innovation.

A key driver is the falling cost of clean technologies. Increasingly, the once-perceived "green premium" - the perception that low-carbon options are inherently more expensive - is shifting into a "green discount."

Renewable energy is already outpacing fossil fuel-based electricity tariffs in India, while mini-solar grids offer more reliable power than diesel generators at lower life-cycle costs across sub-Saharan Africa.

This on-site deployment is a function of global technological improvements, but also of region-specific factors, including high fuel import costs, poor grid reliability, and lack of infrastructure - issues that often slow the transition in developed markets.

These conditions create cleaner alternatives, but also ones that are structurally better and aligned with user needs and system costs. In this context, business fundamentals, in particular unit economics, customer acquisition costs, and payback period, are key filters for scalability.

India's transportation sector offers a clear example. Unlike many developed markets, India's roads are dominated by two- and three-wheelers, which account for more than 80% of vehicle sales.

These vehicles are essential assets that generate income for millions of workers. Here, "battery-as-a-service" platforms have separated the cost, maintenance, and upgradeability of batteries from the price of the vehicle itself. This has made owning an electric vehicle (EV) more affordable than a gasoline-powered vehicle. This model increases affordability while accelerating the transition to zero-carbon mobility.

Meanwhile, Africa needs nearly $400 billion in investment annually by 2030 to achieve low-carbon, climate-resilient development. Three key areas are vital to this shift - energy transition and sustainable infrastructure; adaptation and resilience; and restoring natural capital.

Decentralized energy and mobility solutions stand out as evidence of how informed innovation in Africa can reconcile climate ambitions with immediate livelihood needs. Solar-powered battery rentals, for example, make electrification a predictable operating expense rather than an unaffordable capital outlay. Success requires localized models that are built to meet the realities of the continent.

In Southeast Asia, one of the world's most climate-vulnerable regions, the case is equally strong. The standardised cost of electricity from new solar is already lower than that of new coal and gas plants in several ASEAN economies. However, their adoption remains slow due to financial barriers and grid instability.

Energy-as-a-service models eliminate large upfront capital requirements and reduce system performance risk, while mobility companies reduce costs and improve quality by building local supply chains.

Regularity, but also the need for capital

These examples illustrate an important pattern. The most scalable climate solutions in emerging markets are not those that simply transplant global technologies. They are built for and within their context - serving a rapidly growing base of four billion emerging consumers. They are also based on proven business fundamentals, not new structures, and are designed to withstand price shocks, policy changes, and informal market dynamics.

Emerging markets, long considered high-risk recipients of climate capital, are fast becoming the world's most active test bed for the decarbonization economy. Constraints are sharpening execution. The demand signals are clear. The upside for investors is a set of solutions that are more efficient, more quickly scalable, and better aligned with the future energy system.

What these markets need are not one-size-fits-all solutions, but thoughtful capital, a long-term focus, and operational patience. This is where the next generation of climate leaders will emerge, and investors who ignore it risk missing out on the defining growth story of the global transition.