Effective sustainability-related actions in emerging markets strengthen global market access and attract investment capital, address consumer and talent concerns, deliver higher business-value creation and build resilience to manage risk and disruption, says management consulting firm Boston Consulting Group (BCG).

If climate change remains on its current trajectory, the impact will grow far more severe for emerging markets, and sub-Saharan Africa could lose up to 6% of per capita gross domestic product, according to global ratings firm S&P Global Ratings, BCG highlights.

“However, the public and private sectors of emerging markets, particularly in middle-income nations like South Africa, can change this trajectory,” says BCG Johannesburg partner and MD Lucas Chaumontet.

“The good news is that emerging market companies in every industry sector are responding to intensifying pressure at home and abroad from consumers, employees, trading partners, investors and regulators to back their green commitments with tangible actions to adopt lower-emission economic development paths and business models,” he notes.

New research from BCG indicates a strong correlation between emerging market companies’ scores in environmental, social and governance (ESG) indexes and key financial and value creation metrics, he adds.

“Emerging market companies that take the lead are already winning at home, strengthening their access to international markets, lowering their cost of capital, enjoying higher customer satisfaction, and becoming better able to win and retain top talent. Those that don’t act risk losing their competitive edge, and we believe that gap will widen rapidly,” he explains.

Companies with strong reputations for meeting ESG challenges in emerging markets are rewarded with major growth opportunities, BCG’s latest Global Challengers 'The Sustainability Imperative in Emerging Markets' report highlights.

“The challenge is that emerging market companies currently significantly underperform their developed market peers across each of the ESG pillars. Developed market companies have had a decades-long head start in launching sustainability initiatives, and the policy focus in most emerging markets has been on growth rather than impact, with industries that fuel economic development typically being emissions-intensive,” says Chaumontet.

Emerging markets have an outsized stake in mitigating climate change because, even though they emit significantly fewer greenhouse gases per capita than developed markets, the populations, economies and natural ecosystems in many low- and middle-income nations are suffering some of the most devastating consequences of global warming, he emphasises.

“ESG improvements can unlock growth. The report shows that emerging market companies that are in the vanguard of sustainability can substantially enhance financial performance and unlock the doors to new growth opportunities,” says Chaumontet.

It is becoming increasingly clear that the sustainability imperative is transforming the very nature of global competition. Sustainability issues are, however, rapidly rising to the top of emerging market company CEOs’ priority lists, with climate change taking centre stage, he notes.

South African and other emerging market companies can continue to gain benefits from sustainability if they embed sustainability into the organisation’s purpose, business strategy and goals, and acknowledge the immediate profit impact of ESG initiatives, while outlining long-term returns for the company.

Further, companies must collaborate with policymakers, industry peers, suppliers and other partners and mobilise as an ecosystem, and make resilience and change part of the company’s core operations through ESG initiatives.

Companies in emerging markets must also accelerate technological innovation to enable sustainability and consider new sustainable business models to capture emerging opportunities.

They should also transform the organisation by incentivising leaders through key performance indicators, engaging employees through training, and designing a roadmap for execution, as well as regularly communicating and engaging with stakeholders to show that the company is meeting its targets, BCG advises.