A new report by Dun & Bradstreet (D&B), a leading global data and business intelligence firm, has highlighted a critical $3.7 trillion annual Environmental, Social, and Governance (ESG) financing gap affecting emerging economies. The report, titled “ESG Funding in Emerging Markets,” underscores the growing disparity between developed and developing nations in accessing the necessary capital to meet sustainability targets.

The ESG Financing Gap

The $3.7 trillion shortfall represents the annual funding required for emerging markets to achieve the UN Sustainable Development Goals (SDGs) by 2030. According to the report, this gap is a major challenge in the global sustainability transition, placing South Asia, the Middle East, and Africa at a disadvantage compared to their developed counterparts.

The global ESG market has seen remarkable growth, reaching an estimated $3 trillion, with $1.6 million flowing into sustainable funds every minute. By 2025, one-third of global investment dollars are expected to be linked to ESG criteria. However, despite this rapid growth, most of the capital continues to flow into developed markets, leaving emerging economies at the margins of the transition.

Challenges Facing Emerging Markets

Dun & Bradstreet attributes this imbalance to several structural constraints faced by emerging economies, including:

1. High Capital Costs: Developing countries face significantly higher financing costs compared to developed nations.
2. Limited Long-Term Financing: Long-term funding for sustainability projects is scarce in emerging markets.
3. Weak Disclosure Standards: Limited transparency in reporting ESG performance reduces investor confidence.
4. Fragmented Regulation: Inconsistent ESG regulations across countries increase perceived investment risks.

These factors, according to the report, contribute to the low flow of sustainable capital into emerging markets, even though these regions generate 60% of global GDP and account for 75% of global emissions.

Africa’s Struggles in ESG Finance

Despite being a key player in the global economy, Africa remains the smallest participant in the global green bond market, accounting for less than 1% of the total global issuances in 2023. In contrast, Europe leads the market, buoyed by stringent disclosure rules, carbon-pricing frameworks, and strong institutional demand.

The report calls attention to the fact that while Africa faces structural challenges, there are some emerging positive signals. For example:

• Saudi Arabia is leveraging its Green Financing Framework to support low-carbon projects as part of its Vision 2030.
• Thailand issued Asia’s first sovereign sustainability-linked bond in 2024.
• South Africa’s Just Energy Transition Partnership has secured $5.1 billion in EU commitments to help shift from coal to renewable energy.

However, these initiatives are small compared to the scale of the overall global ESG financing need.

Regulatory Alignment: Key to Unlocking ESG Capital

The report identifies regulatory alignment as a decisive factor in unlocking ESG capital. Countries like China, India, Singapore, and South Africa are moving towards mandatory ESG reporting, anti-greenwashing regulations, and national taxonomies, all of which help reduce information gaps and strengthen investor confidence.

In contrast, Nigeria is still in the early stages of voluntary ESG reporting frameworks and sustainable finance guidelines. The report cautions that without stronger enforcement of regulations and aligned standards, Nigerian corporates and financial institutions risk missing out on the growing pool of sustainability-linked capital needed to meet their climate and development goals.

Recommendations for Bridging the Gap

To address the ESG financing gap, the report recommends the following actions:

1. Coordinated Taxonomies: National and regional taxonomies that define what qualifies as sustainable or green investments.
2. Blended-Finance Structures: Mechanisms to de-risk early-stage projects and encourage private sector participation.
3. Stronger ESG Data Systems: Improved data collection and reporting on ESG factors to enhance transparency and accountability.
4. Engagement from Domestic Banks and Corporates: Increased involvement of local financial institutions and businesses in driving the ESG agenda.

The Path Forward

Dun & Bradstreet concludes that the most transformative investment opportunities exist in emerging markets, where the funding gaps are the deepest and where the impact of scalable ESG finance can be the greatest. Despite the current challenges, these regions hold vast potential for both sustainable development and economic growth if they can attract the necessary financing and implement effective regulatory frameworks.

This report serves as a critical call to action for both policymakers and investors to take meaningful steps toward bridging the ESG financing gap and enabling sustainable growth in emerging economies.