ESG in the Developing Economies – Does it Matter?

Abstract

Environmental, Social, and Governance- ESG- an acronym coined in 2005, has been steadily growing until recently. Across industries, geographies, and company sizes, organisations have been allocating more resources toward improving ESG. Investors expect their assets to be a force for good, or at least not to harm. Approaches range from avoiding companies or sectors deemed to fail on ethical grounds to active engagement with companies. Exclusionary screening is the most prevalent approach to ESG investing and may focus on individual stocks or entire sectors. The environmental component of ESG and responses to climate change has driven a significant part of ESG growth. However, other components of ESG, particularly the social dimension, have also been gaining prominence. In the wake of the war in Ukraine, the ensuing human tragedy, and the cumulative geopolitical, economic, and societal effects, critics have argued that the importance of ESG has peaked. In the future, today’s preoccupation with ESG may be remembered as merely a fad and go the way of similar acronyms used in the past. This study explores the general concept of ESG in developing economies, its evolution and key components, and the importance and critical lens of ESG.