How to fill the sustainability gap in emerging markets and why it matters

Sustainability is not just socially responsible, it’s also critically important for long-term growth and value creation. Companies in advanced economies realized this decades ago and began to act accordingly.

As companies in emerging markets make this discovery for themselves, they have a lot of catching up to do. It’s urgent for them to close this gap as the "sustainability imperative” reshapes global competition.

BCG analysis indicates a strong correlation between emerging market companies’ performance on environmental, social, and governance (ESG) maturity and performance.

Companies that are meeting ESG challenges in emerging markets are already reaping benefits that include better access to markets, capital and talent, and they’re leaving their less sustainable competition behind.

Even these higher-performing emerging market companies, however, lag far behind companies in developed markets. It’s hardly surprising, given the sharp disparities in economic development levels and social challenges of high-income and low-income nations.

At COP27, developed-market governments recognized this imbalance by creating a “loss and damage fund” to help emerging market nations become more resilient in the face of climate change.

But achieving the goals of COP27 will require the commitment of private companies in these countries – and these companies’ investors, employees, customers and other stakeholders increasingly demand it as well. Companies that fail to close the sustainability gap will find themselves at an increasing disadvantage in both domestic and foreign markets.

BCG has long published a list of “Global Challengers”— sizable, high-growth emerging market companies that outperform their peers and reshape their industries. This year, we revised our approach to look not only at key performance indicators (KPIs), but at companies’ performance in terms of environmental sustainability.

We also identified found a group of “climate pioneers” that are outperforming their peers on both financial and environmental key indicators. The message is clear: Being environmentally sustainable does not require sacrificing growth or profitability and indeed the reverse is true, being sustainable helps companies create significant value for their stakeholders.

We also identified common success factors among these climate pioneers; practices that are helping emerging market companies grow and prosper, which can be summarized across seven main themes:

The 50 companies BCG identified as global challengers and climate pioneers are already seeing these efforts pay off in new growth opportunities, which include:

Effective leaders are putting to rest the idea that environmental sustainability means sacrificing strong financial results. Instead, sustainability is becoming a powerful source of competitive advantage and companies in emerging markets need to close the gap between them and their counterparts in developed economies as it reshapes global competition.