How emerging markets are redefining growth for a sustainable global economy

The global narrative on sustainability is shifting, but for emerging markets (EMs), the conversation is fraught with a unique tension.

While the climate crisis is everywhere — manifesting in heat waves in New Delhi and water crises in Jakarta — these nations face a simultaneous battle against poverty and stagnation. The "growth-at-any-cost" mindset is no longer viable, yet a single-minded focus on environmental preservation that ignores economic reality is equally impossible.

In this article we’ll explore how we can bridge this divide, drawing on the D-ESG Framework developed by Anne Miroux, Shailja Bang Shah and I at Cornell University’s Emerging Markets Institute.

Sustainable growth and climate frameworks, largely designed for developed economies, often neglect the developmental needs of emerging markets. For rich nations, prioritizing environmental concerns over GDP growth is a palatable trade-off because large portions of their societies have reached acceptable wealth levels.

However, this perspective is difficult to accept for many emerging markets. In these economies, environmental concerns potentially compete with basic needs: food, water, clothing and shelter. For example, should Mumbai focus on fixing an overloaded transport system for 10 million commuters? Or should it prioritise solving air quality issues that cause widespread health problems?

The reality is they must do both. Growth remains a priority for emerging markets, but it must be combined with environmental, social and governance (ESG) principles to ensure inclusive long-term development. Without economic momentum, the resources required to support ESG improvements simply do not exist.

Current sustainable growth models can penalise emerging markets for not meeting benchmarks that don’t account for starting conditions. Traditional ESG frameworks are typically anchored in criteria developed with advanced nations as the reference point. Applying these standards to EMs produces skewed assessments that fail to account for the distinct challenges and opportunities shaping their trajectories.

Furthermore, static evaluations obscure the journey of development. Emerging markets often have nonlinear growth trajectories shaped by institutional transitions and external shocks. Judging them solely on their current standing ignores the structural transformations achieved over time.

To address this disparity, the Emerging Markets Institute introduced the D-ESG framework, adding a "D" for development/economic growth to the standard acronym. This framework offers a roadmap for EMs to navigate the sustainability landscape by adhering to three critical shifts in perspective:

The framework compares EMs (specifically the E20+1 group) against their peers rather than advanced economies. This ensures that variables are relevant to the realities of these nations, creating a fairer assessment of performance.

Rather than viewing growth and sustainability as trade-offs, the D-ESG framework integrates them.

The D pillar includes GDP, trade, innovation and fiscal balance. The weighting recognises that economic conditions shape the ability to focus on ESG, the economic growth pillar carries a 30% weight, while the combined E, S and G pillars carry 70%.

Crucially, the framework measures current performance and growth over the last decade. By averaging a country's current score with its 10-year growth score, the model rewards countries making rapid improvements, even if their absolute numbers are not yet on par with the developed world.

Applying this lens reveals fascinating insights about the trade-offs EMs face. When examining the performance in 2024, a few points standout:

The cost of growth: China emerges as the strongest overall performer, with its position driven primarily by the economic (“D”) pillar, which is underpinned by substantial economic growth in recent decades. Its performance on the environmental pillar, however, is markedly weaker, highlighting the severe ecological cost of its rapid expansion.

The "green" stagnation: Conversely, Latin American countries like Mexico, Colombia and Brazil perform well in the environmental pillar but show much weaker performance in the economic growth pillar. This reflects a comparatively weaker economic momentum over the last decade.

Finding balance: Countries like the Philippines and Viet Nam show strong performance overall because they have managed to combine robust economic performance with strong results in the E, S and G pillars.

The green transition must be reframed as part of both the growth and sustainability agendas for emerging markets. The EMI D-ESG Framework demonstrates that economic growth and ESG are not parallel agendas but deeply intertwined dimensions of development.

By embedding development and growth into sustainability frameworks, we can move beyond unrealistic targets that discourage investment. Instead, we can foster a system where progress is recognised, capital is attracted and the transition to a sustainable future is not just greener, but also fairer and faster.

As we look forward, the debate must also evolve to better measure governance, a cornerstone of sustainable growth that remains difficult to quantify but essential for success.