Among developed countries investors, there are various interpretations of the strength of the commitment to environmental, social and governance (ESG) factors in emerging markets, ranging from the cynical to the idealistic.
The cynical view would be that there can be no “real” ESG in emerging markets because too often they are plagued by corruption, therefore investors cannot trust what companies in these countries report.
The idealistic view, on the other hand, would see every little step towards introducing ESG as a wonderful sign that these countries are finally deciding to adopt the same values as Western democracies.
While both extremes are wrong, sadly even the moderate take misses the main difference between emerging markets and developed ones: the effect of development itself on ESG — and in particular on the “E”.
To make meaningful progress in implementing ESG standards in emerging markets, we should give up on the acronym and look at E, S and G as separate factors. This could reveal, among other things, that some emerging markets are stronger on environmental standards than developed ones.
If you cannot supress a cynical thought when reading the sentence above, ask yourself: where do you still find big carnivores such as wolves and lynx, but also bears, in Europe? In developed Western Europe, or in developing Eastern Europe?
Not just in Europe, on other continents as well, it is often the case that the poorest countries have better preserved environmental treasures than richer ones.
Of course, this is due to the fact that the poorest countries are often the least industrialised and therefore they did not hurt their environment in the quest for rising living standards as much as the richer ones have done.
This doesn’t mean that they aren’t in the process of doing so. And we must find a way to stop it, or it will destroy the planet for good.
How to save the Amazon
Take Brazil, home of the magnificent Amazon rainforest. Because of their capacity to store carbon and release oxygen, forests are known as the lungs of the planet, and this one is the biggest.
Between August last year and July this year, 11,088 square kilometres of rainforest were destroyed — a 9.5% increase from the previous year and the highest level since 2008, according to a report quoted by the BBC.
Part of it had to do with forest fires, but a lot had to do with human activity — Brazilian president Jair Bolsonaro has often been criticised for encouraging agriculture and mining in the rainforest.
He is not the only target of international opprobrium. Other countries have been slammed for allowing human activity to degrade the environment – think of the outcry about the destruction of orangutangs’ habitats to make way for the expanding palm oil industry in Indonesia and Malaysia.
Or, remember the unequal fight between forest rangers and illegal loggers in the biggest of Europe’s last remaining primeval forests, in Romania. Last year, two forest rangers were murdered while trying to stop illegal loggers in the space of a little more than a month.
Forests are the key to fighting climate change, and not only because the trees give out oxygen and absorb carbon. In addition, they help regulate local weather patterns, stop the soil from eroding and are the home of various species of animals, insects and birds that are crucial to preserving biodiversity.
Pay the poor to protect the Earth
To avoid conflicts of interest between the need to lift people out of poverty and the imperative to avoid hurting already fragile ecosystems, one solution would be to “sponsor” such emerging markets to preserve the environment.
Developed countries or international institutions could devise a system by which investment in sustainable development would be allocated to developing countries depending on a range of “points” awarded on various issues proving how well they preserve those areas of their environment that are considered crucial for the planet.
Such investment would need to be substantial and supervised by international bodies to make sure it is invested according to the rules, rather than syphoned away by corrupt officials.
It would also have to be done with the involvement of local organisations and people, to ensure that it is directed where it is most needed to help alleviate poverty, and to avoid resentment from the local population.
However, this is not enough. On a wider scale, the financial world will have to come up with better measures for economic development than the current ones.
Gross domestic product (GDP), the indicator most often looked at when judging how well a country is doing, is a poor measure of development, because it does not include any discount for damages to the environment caused by various activities.
Growth can be more detrimental than stagnation if it is achieved at the price of harming the environment, and a big GDP per capita number does not always translate into a good investment for the planet.
In the pursuit of growth, rich countries have destroyed their own forests and large parts of their ecosystems. As poorer ones try to catch up, they risk repeating the same mistake. It is the responsibility of the richer nations to help them to avoid doing this, to protect the whole planet.