ESG in Developing Nations: Green Dreams, Tough Realities

As the global push for sustainability intensifies, Environmental, Social, and Governance (ESG) policies are becoming integral to corporate strategies. While developed nations have made notable progress in ESG adoption, developing countries continue to grapple with financial, regulatory, and infrastructural challenges. Balancing economic growth with sustainability remains a key concern, especially for regions reliant on resource-heavy industries. This article delves into the obstacles preventing ESG integration in developing economies and explores potential pathways for progress.

Key Takeaways

• Financial Barriers: High costs and limited access to green financing hinder ESG adoption.

• Knowledge Gaps: SMEs often lack awareness of ESG principles and their long-term benefits.

• Economic Priorities: Governments prioritise growth over sustainability due to reliance on high-pollution industries.

• Consumer & Investor Trends: Lack of ESG-driven demand affects business incentives.

• Infrastructure Challenges: Poor waste management, renewable energy adoption, and transparency hinder progress.

• Policy and Support: Standardized ESG policies, financial incentives, and investment in green initiatives can drive ESG growth.

Environmental, Social, and Governance (ESG) policies have become a cornerstone of sustainable business practices globally. While developed nations such as the United States, Germany, and Japan have made significant strides in ESG compliance, many developing countries—particularly those in South Asia, Sub-Saharan Africa, and Latin America—continue to face substantial challenges.

Technically, "developing countries" have no single definition. The WTO allows self-designation, while the UN classifies them based on Gross National Income (GNI) per capita. Countries like India, Brazil, and Nigeria fall under this category due to their economic status, despite varying levels of industrial progress. These nations face barriers such as regulatory shortcomings, financial constraints, and conflicting economic priorities. This article explores the key obstacles hindering ESG adoption in developing economies and potential strategies to address them.

Challenges in ESG Compliance

Financial Constraints

One of the most significant challenges in implementing ESG policies in developing countries is the financial burden. Sustainable practices often require prominent investments in infrastructure, technology, and employee training, which many companies in developing economies cannot afford. Moreover, access to green financing remains limited due to underdeveloped financial markets and a lack of government incitements. Without external funding support or tax benefits, businesses find it difficult to prioritize ESG initiatives over immediate economic concerns.

Lack of Awareness and Expertise

Many businesses in developing countries lack a fundamental understanding of ESG principles and their long-term benefits. Small and medium-sized enterprises (SMEs), which form the backbone of these economies, often view ESG compliance as an additional cost rather than an investment. Additionally, there is a shortage of ESG professionals who can guide organizations in implementing sustainable strategies, leading to poor adoption rates.

Economic Priorities vs. ESG Goals

Developing nations frequently categorise economic growth, poverty alleviation, and job creation over ESG concerns. Governments may hesitate to impose strict ESG regulations for fear of discouraging foreign investment or slowing industrial growth. Furthermore, many economies heavily rely on high-pollution industries such as coal, mining, and manufacturing. Transitioning these sectors to sustainable models requires significant policy shifts and financial support, which are often lacking. For instance, India's fashion and textile industry aims to triple its value to $350 billion by 2030, creating 2.1 million jobs. However, this growth must align with stringent sustainability goals, posing challenges due to the sector's reliance on coal and the need for substantial investment in renewable energy.

Consumer and Investor Behavior

Unlike in developed markets, where consumer preferences and investor activism drive ESG compliance, developing countries often lack similar pressures. Consumers classify affordability over sustainability, reducing the incentive for businesses to adopt eco-friendly and ethical practices. Also, shareholders and investors in these regions often focus more on financial returns rather than ESG performance, leading to minimal demand for responsible corporate behaviour.

Infrastructure and Transparency Challenges

A lack of essential infrastructure also hampers ESG implementation. Many developing countries face challenges in waste management, renewable energy adoption, and sustainable transport systems. Moreover, ESG compliance requires transparency and reliable data reporting, yet many businesses in these economies lack the technological capacity and expertise needed for ESG compliance. As a result, they struggle to track and disclose their ESG performance effectively

Despite these challenges, developing countries can take several steps to improve ESG compliance. A prominent example is India, which has been strengthening ESG compliance through recent policy measures. The Union Budget 2025-26 emphasized clean energy initiatives, including a Nuclear Energy Mission targeting 100 GW capacity by 2047 and inducements for manufacturing green technologies like EV batteries and solar cells. Furthermore, ₹150 billion was proposed to support low-carbon steel production.

Bottom Line

Developing nations face significant hurdles in ESG adoption, from financial constraints and weak regulatory frameworks to a dependence on resource-heavy industries. These challenges create a persistent conflict between economic growth and sustainability. Limited access to green finance further hampers progress, while low consumer and investor demand weakens the push for responsible business practices.

To bridge this gap, governments must implement clear, standardised ESG policies with strict enforcement, coupled with financial incentives such as tax benefits, subsidies, and improved access to sustainable funding.

Strategic investments in renewable energy, waste management, and green technology will be key to long-term progress. However, without stronger international collaboration and financial support, ESG integration in developing economies will remain fragmented, delaying the global transition towards sustainable development.