With the increasing focus on environment, social and governance (ESG) factors in investing, sustainable investing in emerging markets has become an important topic. Emerging markets face greater sustainability challenges but also present significant opportunities for investors. This article examines the motivations, strategies and prospects for sustainable emerging markets investment.

Growth potential makes emerging markets attractive for sustainable investors
Emerging markets are expected to drive global economic growth in coming decades. Countries like China, India, Brazil, Mexico, Indonesia and others boast young, dynamic populations, an expanding middle class and rapid urbanization. As these developing economies mature and incomes rise, demand for consumer goods, infrastructure, technology and financial services will skyrocket. Multinational companies view emerging markets as key to their business expansion and profit growth. Likewise, sustainable investors understand the incredible potential of emerging economies. By financing solutions to ESG problems in developing nations, impact investors can tap into secular growth trends and generate both social and financial returns.
Poor sustainability scores drive the need for ESG integration and engagement
While emerging markets offer growth prospects, they lag developed countries in sustainability practices and disclosures. Weak environmental regulations, labor rights issues and corporate governance deficiencies are common in the developing world. However, global investors increasingly demand that companies manage ESG risks and pursue sustainability. This necessitates greater ESG integration and active shareholder engagement in emerging markets. Asset managers must properly analyze environmental risks, social capital needs and governance quality when evaluating investment opportunities in these regions. Constructive engagement with management helps improve sustainability over time.
ESG integration and impact investing gain momentum in emerging markets
Initially, responsible investing focused on Europe, Australia, Canada and the United States where regulations and corporate sustainability were more advanced. But there is growing momentum around ESG integration and impact investing in emerging markets, especially since the 2015 Paris Accord on climate change. The Principles for Responsible Investment (PRI), a major UN-supported investor initiative, reports that emerging market signatories have grown over 50% since 2020. Mainstream firms like BlackRock, Goldman Sachs, JP Morgan and UBS now run dedicated emerging markets ESG funds to meet rising client demand. Major index providers such as MSCI, FTSE Russell and S&P Global have also launched benchmark emerging markets ESG indices to track performance.
Challenges exist but can be overcome through collaboration
While interest is expanding, there are real challenges to scaling sustainable emerging markets investment. Underdeveloped regulations are an obstacle, as is the lack of standardized and audited ESG reporting in many countries. There may be fewer suitable impact investing opportunities than in developed economies. Investors must be selective and undertake thorough due diligence. However, these hurdles can be gradually overcome through collaboration between asset managers, development banks, NGOs and governments. The long-term growth thesis remains compelling. Leading asset managers recognize that integrating ESG factors into emerging markets investment analysis can enhance risk-adjusted returns.
Though challenges exist, the secular growth and ESG investment potential make emerging markets an important priority for sustainable investors. Active integration and engagement allow investors to tap into long-term opportunities while driving better sustainability in developing countries.