Sustainability and growth in emerging markets are not mutually exclusive.
In the global pursuit of sustainability, Small and Medium-sized Enterprises (SMEs) in emerging markets play a pivotal role, particularly in sectors like education, communication, renewable energy, water, and new mobility. However, these businesses often face significant challenges in demonstrating strong Environmental, Social, Governance (ESG) performance compared to their larger counterparts [1][5].
The primary obstacles for SMEs include limited resources, lack of expertise, and the difficulty in collecting and reporting sustainability data [1][5]. This often results in a perception of less mature or transparent ESG practices among SMEs compared to larger firms.
Access to sustainability-related finance is increasingly dependent on providing ESG data, but SMEs in emerging markets often grapple with administrative burdens and complexity in sustainability reporting frameworks that larger companies find more manageable [1].
While SMEs tend to prioritize operational sustainability investments with direct cost benefits, such as energy efficiency, they show growing strategic engagement in sustainability initiatives that are relevant to their scale and sectors [3]. However, the lack of standardized and comparable ESG data on SMEs versus larger firms persists, partly because sustainability reporting frameworks are often designed with larger enterprises in mind [1][5].
Despite these challenges, SMEs in emerging markets are critical actors in sectors like renewable energy and new mobility and show positive momentum toward sustainability [1][3][5].
Investors are increasingly focusing on sustainability in emerging markets, and funds like the Ökoworld Growing Markets 2.0 fund, which invests in companies in emerging markets, are leading the way [6]. The fund considers stocks whose business focuses on emerging markets, and the top performers are from Taiwan, China, South Korea, India, Japan, and the USA [7].
Notable companies in these markets include Telenor, a Norwegian mobile company active in India, Eastern Europe, and Asia, offering mobile financial and health solutions, especially in rural areas [8]. Telenor is also involved in education to promote media literacy among seniors, children, and youth, as well as among people in emerging and developing countries [8].
Another company is KDDI, a Japanese telecommunications provider, offering fixed-line and mobile services, broadband internet, and network services not only in Japan but also in Asian emerging markets like Cambodia and Mongolia [9]. KDDI offers educational programs for youth and child protection in internet use and has developed an app specifically for understanding text messages for the blind [9].
However, it's important to note that unrestrained economic growth in recent decades has led to significant pollution in many emerging market countries [10]. To address this, funds like the Ökoworld Growing Markets 2.0 fund use a complex screening and filtering process for selecting suitable companies that prioritize sustainability [6].
Alexander Mozer, who primarily invests in fast-growing, small and medium-sized companies with a focus on domestic markets, is also investing in the Chinese electric vehicle manufacturer Nio and the Taiwanese bicycle manufacturer Giant Manufacture [11].
Emerging market countries are among the fastest-growing economies in the world, making them attractive investment destinations for many investors who have returned after challenging years [12]. Despite the challenges faced by SMEs in these markets, their crucial role in driving green transitions and the increasing focus on sustainability offer promising opportunities for future growth and development.
Economic and social policy concerning SMEs in emerging markets should include measures to simplify ESG reporting frameworks and provide resources for sustainability data collection, as these challenges hamper the access to sustainability-related finance for these businesses.
Investing in funds like the Ökoworld Growing Markets 2.0 fund can offer a means for financing SMEs in emerging markets, particularly those prioritizing sustainability and environmental impact in their operations.
