Is it sustainable to hold emerging markets to global ESG reporting standards?
By Kim Polley
In the wake of Africa’s inaugural climate summit held in Nairobi, three salient themes have emerged that resonate deeply with the continent’s burgeoning environmental consciousness. Firstly, there’s an unmissable urgency for pragmatic solutions to combat climate change among Africans. Secondly, a profound disappointment lingers due to unmet climate finance commitments by Western and industrialised nations. Thirdly, a complex interplay between climate change, peace, and security is now perceived as a priority requiring multi-faceted strategies.
These prevailing sentiments offer an essential lens through which we must examine the global push for universal Environmental, Social, and Governance (ESG) reporting standards, particularly as they apply to emerging markets like those in Africa.
Global leaders have called for a universal sustainability reporting standard to measure business sustainability and address the imminent threat of climate change. With a world struggling to meet the challenge of a series of polycrises, this may seem an eminently reasonable concern. Sustainability is a global systemic challenge that requires co-ordinated international action. Surely, without a common set of standards and protocols, how can we develop a coherent and effective united front? Moreover, how would we be able to gauge progress at the scale necessary to effect change?
However, there are concerns that a one-size-fits-all approach to reporting could be too rigid and reductive for emerging markets. After all, reporting standards need, on the one hand, to be sufficiently universal and rigorous, but they cannot be so rigid that they restrict the ability of stakeholders to be pragmatic and flexible, especially when market conditions are hardly uniform worldwide. Which begs the question why developing economies are subject to a host of environmental policy impositions from their developed-market counterparts? The “premier league polluters” — as an earlier article I wrote on this subject refers— continue to recommend, advise and ultimately impose obligations, which are often inappropriate to the markets they target.
The benefits and challenges of global standards
Global accounting standards have been successful in improving transparency and mitigating business risk. A similar approach could be beneficial for sustainability reporting, as it would allow investors, customers, and other stakeholders to compare companies more easily and make informed decisions. However, emerging markets face unique challenges that may not be adequately addressed by global standards. For example, smaller companies may lack the resources to comply with complex reporting requirements. Additionally, emerging markets often have different regulatory frameworks and environmental priorities than developed markets.
A pragmatic approach
Take sugar and tobacco for instance. These “sin” commodities are lambasted globally for their public health effects. However, in some sub-Saharan economies their entire value chains are dependent on these industries. Demanding their wholesale abandonment would cause an economic implosion of disastrous proportions, putting jobs, local economies and lives at risk. Should we consider climate financing to help these economies move away from such a skewed dependence on “sin” sectors? Absolutely. Can it be done quickly and comfortably? Definitely not.
Therefore, the best approach to sustainability reporting may be a hybrid model that combines global standards with flexibility for emerging markets. This would allow companies to meet the needs of investors and stakeholders while also taking into account their local context.
The importance of action
Sustainability is a global challenge that requires a global response. While there is no single solution, a pragmatic approach to sustainability reporting can help to accelerate progress and build a more sustainable future. Here are some specific ways to make global ESG reporting standards more sustainable for emerging markets:
- Consider the specific circumstances of emerging markets. This includes factors such as the size of companies, the availability of data, and the regulatory environment.
- Provide flexibility for emerging markets to adapt the standards to their local context. This could be done by allowing companies to use different methodologies or by providing exemptions for smaller companies.
- Provide support to emerging markets to help them comply with the standards. This could include providing technical assistance or training.
By taking these steps, we can make global ESG reporting standards more sustainable for emerging markets and help to build a more sustainable future for all.