Early Insights: Unlocking a fair transition for companies in emerging markets

AXA XL is partnering with The University of Oxford to explore the private sector’s perspectives on decarbonization and the transition to a low-carbon economy in emerging markets, with deep dives into three key countries: India, Kenya, and Mexico. The research project focuses on two critical industries: the food and beverage sector and the buildings and construction sector, both of which are essential for economic growth yet also significant sources of emissions.

Ahead of the publication of the research next year, AXA XL’s Social Impact Director, Flynn Lebus, spoke with the lead researchers, Professor Javier Lezaun and Dr Jessica Omukuti, to get a preview of key insights from their investigation.

Flynn: A successful transition will be one that is achieved in tandem with economic aspirations. Would you agree that this is the most important dynamic in countries like India, Kenya and Mexico?

Jessica: Tremendous growth aspirations are driving these economies. India, for instance, has a 2026 GDP growth forecast of over 6%. The focus is on prosperity and framing the case for decarbonization as value creation. It is about competitive differentiation, building resilience and demonstrating efficiencies with cost savings. Both the buildings and construction and food and beverage sectors are vital to daily life and economic progress. They are also key to the transitions of these countries yet face daunting challenges in reducing their carbon footprints.

In construction, emerging markets make up 90% of global cement and 70% of global steel production. Volumes are expected to grow significantly due to rapid urbanisation and income growth. The food and beverage sector is energy-intensive too — think refrigeration, packaging, and manufacturing—and highly consumer-focused and price sensitive. This sector is particularly affected by changing weather patterns and environmental degradation impacting the quality and reliability of agricultural value chains. This makes environmental sustainability a critical commercial risk for food and beverage companies.

However, the transition is not happening at the same rate everywhere. Some countries and industries are progressing more quickly than others. Within those nations, the benefits are not evenly spread. In Kenya, India, and Mexico, this unevenness is especially pronounced because these economies are growing but face limitations in transition financing, infrastructure, and governance. The challenge—and the opportunity—is to de-risk the transition as part of achieving national economic aspirations.

“Companies want to take part in the transition but feel the incentives available to larger players are out of reach for them.” — Jessica Omukuti

Flynn: Although the research is still at an early stage, what are some of the challenges to sectoral decarbonization in these markets? What are the related risks for companies in these markets?

Javier: At this stage we see three systemic and interconnected challenges slowing down effective and equitable transitions by companies: inadequate national policy frameworks, informal economy practices and insufficient affordable transition financing. These can pose risks for companies directly and indirectly operating in these markets.

Our hypothesis is that global frameworks and tools used to guide decarbonisation in these sectors are not always relevant in emerging economies due to structural conditions in these countries. Our data confirms this. Take the construction sector. While some mature markets considered as ‘best practice’ for decarbonization in the construction sector are moving towards regulations for reducing embodied emissions of buildings, the same frameworks cannot be applied to our case study countries because the local supply chains for sustainable construction materials are still underdeveloped.

Informal sector dynamics are also posing challenges to equitable decarbonisation. Take informal construction, which is not regulated by government and is outside the formal economy . It accounts for a large share of buildings in emerging economies, rarely uses standardised or regulated materials. This makes regulation, which is essential for decarbonisation, difficult. Informality also affects supply chain reliability. The supply of more sustainable inputs is particularly affected by informality. Increasing the production of more sustainable steel, for instance, requires availability of scrap metal that is often collected and aggregated by informal workers. Many of these informal workers are women and minors trapped in a cycle of insecure, low-paid employment, and increasingly exposed to weather perils such as extreme heat that result from a changing climate and that impact productivity.

Financing also remains a significant obstacle. Borrowing costs are higher in emerging markets, which makes it more difficult for businesses to invest in low-carbon technologies even when the advantages are evident. This higher cost of capital may also be tied to perceptions of higher levels of risk in these markets, driven by the wider operating environment challenges such as policy and supply chain reliability noted above. It may also place transition commitments at risk of being delayed if these challenges are not addressed.

Flynn: What do you see as the most important insights for international and domestic companies whose transition plans are tied to local supply chain resilience and consumer market expectations and regulations?

Javier: We have found that the prompt for local transitions often comes from international companies that have adopted decarbonisation goals for their global operations, either for their supply chain resilience or to meet international market expectations. This is encouraging but not enough to move entire sectors in emerging markets. Approaches to transitioning these sectors need to be adapted to the realities of emerging economies that need to grow fast to achieve a broad-based rise in living standards.

Boosting supply chain resilience is very important. At the national level, decarbonisation goals must be built into the subsidies offered to farmers to offset their energy costs. Although the sharply declining cost of solar technology and renewable energy has enabled some smallholder farmers to transition to renewable energy for productive uses, companies must explore how to support this power supply transition alongside adaptation investments to maintain food supply reliability and quality. Furthermore, circular economies and low-carbon transitions in these countries requires acknowledging the contribution of the informal sector. Implementing policies that protect workers could bolster supply quality and reliability as well as deliver social benefit.

Finally, it is important to complement sustainable taxonomies with investment incentives to really unlock additional transition financing and mitigate risk. Mexico is a good example. Its 2023 Sustainable Taxonomy models its environmental objectives after those of the EU Taxonomy, but incorporates a set of social objectives as well, a real novelty. It is potentially a key public policy tool for steering the construction sector, but it will only become a lever for systemic changes if the government incentivizes the investment vehicles that incorporate its criteria.

Companies ought to advocate for – or at least monitor – evolutions in these taxonomies as they adapt to reflect local transition dynamics and emerging technologies, including with shareholders and investors.

Decarbonization needs to be part of a holistic approach to sustainability and growth in countries that are also increasingly impacted by severe climate change impacts. We think that these countries and industry sectors serve as excellent case examples, offering a wide range of insights into the real, on-the-ground risks companies face in reducing their emissions while pursuing growth.

Flynn: Insurance is de-risking the transition today through a range of products and services, from risk consulting to commercial credit risk solutions, parametric and inclusive insurance offerings. What is emerging for large companies is that transition risks (and physical risks) in the supply chain are becoming more visible through the process of assessing how to decarbonize. Do you agree?

Jessica: At this stage, I would suggest that risk managers should recognize that supply chains won’t all decarbonise at the same pace, regulations won’t always be synchronised or implemented evenly, and local conditions will vary. Having insights into how these dynamics unfold in emerging markets and being realistic about how these economies operate in practice can be a significant advantage in shaping risk management and corporate strategy.

Companies, as well as other key stakeholders such as governments, can leverage the insurance industries’ expertise to de-risk the transition. Partnering with the insurance industry to achieve a fair transition is an important piece of the solution. We are looking forward to diving more deeply into the opportunities for risk managers and insurers with AXA XL as we progress the research.

Flynn: Indeed, for a global insurance company like AXA XL, it is an opportunity to harness our capabilities across our commercial, parametric and inclusive insurance business lines for a more responsible transition. So, looking forward what do you hope will come from this research?

Javier: We aim to frame a call to action, drawing on the experience of the private sector, to pursue the shifts required to create an enabling environment for achieving low-carbon economic growth in emerging economies. For large corporates, we want to highlight cases or examples where significant progress is being made. We hope to stimulate conversations around risk and opportunities for action that might not have occurred otherwise.

Flynn: Thanks for the initial findings and insights on risks from your research. We look forward to the sector specific papers coming next year.

About AXA XL’s partnership with The University of Oxford
At AXA XL, our approach to a fair and just transition is defined by a commitment to understanding the social implications of moving to a low-carbon economy and the actions we can take to positively influence outcomes. This includes recognizing the impact of the transition on local communities and considering the multistage phased process that progress may entail in different regions.

AXA XL’s partnership with The University of Oxford exemplifies our commitment to exploring how the private sector can help navigate the societal implications of the decarbonization transition. As the project progresses, it will provide risk managers and brokers with insights to help anticipate disparities, identify opportunities, and strengthen resilience against complex transition risks.

About the Authors

Javier Lezaun is a Professor in the School of Anthropology and serves as the Director of the Institute for Science, Innovation and Society (InSIS) at the University of Oxford. His research examines the intersection of science, technology, and society, with a particular emphasis on how governance frameworks and market structures influence responses to global challenges. With extensive experience analysing complex innovation systems and the politics of transition, Javier offers a critical perspective on how businesses and institutions can navigate the complex realities of climate change and net-zero pathways.

Dr Jessica Omukuti is a Research Fellow on Climate Change Politics in the Global South at Oxford Net Zero and the Institute for Science, Innovation and Society. Her work centres on climate justice, equity, and the development of inclusive policies for decarbonisation in the Global South. She has led research programmes on climate finance, adaptation, and just transitions. Jessica’s work therefore contributes towards understanding how the voices and needs of vulnerable communities are considered in the formulation of net-zero strategies, making her insights particularly relevant for emerging market contexts.

Flynn Lebus

Flynn Lebus is AXA XL’s Social Impact Director, Global Sustainability. She holds a BA Hons in Social and Political Sciences from The University of Cambridge.