Co-written by Devin de Vries, CEO at WhereIsMyTransport and Martin Soderberg, Partner at Spear Capital
The idea that emerging markets need to develop sustainably is hardly new. Rooted in the observation that a “development at any cost” simply isn’t tenable in the long term, its case has been bolstered by global efforts to avert climate catastrophe. For a long time, however, the prevailing logic was that sustainable development comes at a cost, especially when it comes to investor returns.
But as the world embraces sustainability as a principle, it’s becoming increasingly obvious that, rather than coming at the expense of prosperity, sustainable development is the best possible path to achieving it. While there will always be laggards (most notably the big petrochemical companies), the future path to success is clear.
It’s also becoming clear that if investors and the companies they invest in want the prosperity that comes with sustainable development, they need to ensure that their approach is sincere and sustainable.
Emerging markets poised for breakout year
Before digging into what such an approach might look like, it’s worth looking at why it might be so much more lucrative in emerging markets than in the developed world. On the face of it, many would feel that there is just cause to steer clear of them. After all, many emerging economies (especially in Africa) were hit particularly hard by COVID-19 and are without the necessary resources to bounce back as quickly as their developed market counterparts.
But there is a growing sense that emerging markets could be set for a breakout year, especially as China rebounds and opens up its order book again. Murmurs of a “superbubble” in the US could also benefit emerging markets as investors look to avoid massive losses.
It’s also true that many of the fundamentals that made emerging markets lucrative investment destinations in the past remain in place.
This is particularly true of Africa. The continent’s median age is under 20 years old, with 60% of the population under the age of 25. That population is also increasingly well-educated and connected. Those young people will, increasingly, form the world’s labour engine. But they’re also energetic, innovative, and willing to start new businesses.
A growing norm
In order to access funding in any market, those businesses will increasingly have to demonstrate a commitment to sustainability. More and more institutional investors and governments require minimum sustainability standards.
For many companies, that has meant adopting an environmental, social, and governance (ESG)-based approach. But with ESG assets on track to reach US$53-trillion by 2025, it’s going to be increasingly difficult to stand out using ESG. Some have also pointed out that an ESG-based approach can be used for sustainability washing, with companies making a lot of noise despite actually taking any meaningful action when it comes to sustainability.
As such, a far more viable path to sustainability may lie in the United Nations’ Sustainable Development Goals (SDGs).
Adopted in 2015, the SDGs are a universal call to action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity. When it comes to achieving those goals, the UN calls on businesses to play their part too.
“The UN Global Compact asks companies to first do business responsibly and then pursue opportunities to solve societal challenges through business innovation and collaboration,” the body says on a website dedicated to the role of business in achieving the SDGs.
“Global challenges – ranging from climate, water and food crises, to poverty, conflict and inequality – are in need of solutions that the private sector can deliver, representing a large and growing market for business innovation,” it adds.
Practical adoption
From a practical perspective, that means aligning yourself with specific SDGs and letting them guide your business thinking.
Since its founding, WhereIsMyTransport’s mission has been to apply data and technology to make public transport easier to use and better understood. In these roles, it is proving that there are extensive, accessible—and comparably sustainable—transport systems in emerging-market cities. In making the invisible visible, it also helps its clients meet — and prove they meet — their SDG targets.
Spear takes a similar approach when it comes to investing.
It has aligned with the goals for clean water and sanitation, affordable and clean energy, and climate action from an environmental perspective. Societally, it aligns with the goals for good health and wellbeing, gender equality, and decent work and economic growth. And from a governance perspective, it aligns closest with the goals for industry innovation and infrastructure, and responsible consumption and governance.
Opportunity for growth
Of course, there is nothing stopping companies and investors in developed market economies from taking an SDG-based approach The difference in these markets is that there are extensively entrenched systems that need to be dismantled in order to take this approach.
In emerging markets, by contrast, those systems are much easier to replace. In fact, in some instances, it’s possible to build entirely new systems using an SDG-based approach. At a time when they’re both poised for growth and have a lot of room for growth, it’s clear that a sustainable approach to development is the best chance at prosperity for everyone involved.
