The economies of emerging markets (EM), especially those of new countries, are growing quickly. Brazil, China, India, South Africa, Mexico, and Turkey are all examples of economies that are growing faster than average and getting a bigger part of world trade.
Other countries that are becoming more important in the sustainability market are Chile, Peru, and Mexico. In Chile, ESG issuance has hit nearly 12% of GDP between 2016 and 2021. In 2021, some low-income countries, such as Benin and Togo, also issued debt that was tied to ESG factors.
Additional Challenges
According to a Deloitte study, the global ESG and sustainability advisory market is poised to reach a valuation of USD 39.3 billion in 2023. In 2023, there is a heightened emphasis on social equality and inclusion. Investors are scrutinizing companies’ diversity and inclusion policies, gender pay equity, and initiatives to foster a fair and inclusive workplace.
Sustainable finance incorporates ESG principles into business decisions and investment strategies, covering issues from climate change to labor practices. In emerging markets, such issues as healthcare or Latin America’s surge in climate-related borrowing became more mainstream.
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Recent growth in ESG markets could be a big chance for emerging markets to get access to more stable sources of funding and build a bigger, more mature sustainable finance environment. Many of these countries are very vulnerable to climate risks and are already dealing with problems linked to transitioning. Private finance will be a key part of reducing these risks and strengthening the financial sector.
Private Finance Role
The environmental aspect of ESG can be particularly complicated when it comes to the adoption of European-led standards within emerging markets. For example, emerging market regulations seek to advance renewable energy, almost to the point of excluding any fossil-fueled power generation. Still, this ignores the reality of countries such as South Africa, which has an electricity grid that is powered by almost 90% carbon-emitting sources.
The emerging market context is also incomparable in terms of the social aspects of ESG. Gender inequality in regions such as Latin America is of a hugely different nature and scale from that in Europe. Companies and financiers are demanding greater change in terms of gender equality than in Europe.
Recent growth in ESG markets could be a big chance for emerging markets to get access to more stable sources of funding and build a bigger, more mature sustainable finance environment. Many of these countries are very vulnerable to climate risks and are already dealing with problems linked to transitioning. Private finance will be a key part of reducing these risks and strengthening the financial sector.
