Walk into any banking conference today, and you’ll hear the same buzzwords: ESG, sustainability, and impact investing. The conversation is loud, but the action? That’s where the real challenge lies. Why have only a few banks in India and Africa tried to incorporate ESG into their strategies?
Having spent years in leadership roles across India and Africa’s banking sectors, I’ve seen firsthand how financial institutions grapple with ESG integration. It’s no longer about whether banks should embrace ESG—it’s about how they can do so while managing regulatory uncertainty, financial pressure, and a lack of reliable data.
The Reality Check: Why ESG Integration Is Harder Than It Seems
While banks in emerging economies are keen to implement ESG principles, they face a set of unique and complex challenges.
1. Regulatory Uncertainty: The Moving Goalposts
Unlike developed markets, where ESG regulations are relatively mature, emerging economies are still figuring them out. India has introduced SEBI’s Business Responsibility and Sustainability Reporting (BRSR), but enforcement remains inconsistent. In many African nations, ESG frameworks are either weak or vary widely between jurisdictions, leaving banks to navigate a regulatory minefield.
2. The Data Problem: You Can’t Manage What You Can’t Measure
Good ESG decisions depend on good data. Yet, financial institutions often struggle to obtain accurate ESG metrics, especially from SMEs, which dominate many emerging markets. A lack of standardized reporting frameworks makes due diligence difficult, leaving banks to either rely on unverified disclosures or make investment decisions in the dark.
3. Profitability vs. Sustainability: A Constant Balancing Act
For banks in emerging economies, the pressure to generate profits is immense. Fossil fuel financing, large-scale manufacturing, and infrastructure projects still offer high returns, but they often clash with sustainability goals. ESG-driven investments, on the other hand, may take years to deliver tangible financial benefits, making it harder to justify them in quarterly board meetings.
4. The Rise of Greenwashing
With ESG becoming a marketing advantage, many institutions claim sustainability without real substance. Some banks promote ‘green bonds’ or ‘sustainable loans’ without proper impact measurement, eroding trust among investors and customers. Without stringent accountability mechanisms, ESG risks becoming more of a PR exercise than a real driver of change.
5. The Talent Gap: A Missing Link in ESG Finance
Assessing ESG risks requires a unique skill set, one that many banking professionals in emerging markets lack. Traditional risk assessment models don’t always consider environmental and social factors, making it essential to upskill financial experts to understand sustainability metrics, impact investing, and green finance.
What’s the Way Forward?
Despite these challenges, ESG isn’t a lost cause. Banks and financial institutions in emerging economies can make ESG integration a success by taking targeted steps:
✅ Regulatory Clarity & Alignment – Governments and financial regulators need to create uniform, clear ESG policies to make compliance easier and less fragmented.
✅ Leveraging Fintech for ESG Data – AI-driven analytics and blockchain can improve data collection and verification, making ESG tracking more transparent and reliable.
✅ Creating Financial Incentives for ESG Lending – Banks should be encouraged to fund sustainable projects through tax benefits, risk-sharing mechanisms, and preferential interest rates for ESG-compliant businesses.
✅ Upskilling Banking Professionals in ESG Finance – ESG training and certification programs should be prioritized to ensure decision-makers have the expertise to integrate sustainability into financial models.
✅ Building Public-Private Partnerships – Collaboration between banks, governments, and global investors can drive large-scale ESG adoption, ensuring sustainability is both profitable and impactful.
ESG: A Challenge Worth Taking
For banks in emerging markets, ESG integration isn’t just about compliance—it’s about future-proofing financial institutions against global risks, economic shifts, and investor expectations. While the journey is complex, the rewards—both financial and societal—make it one worth taking.
The question is: Will financial institutions in emerging markets see ESG as an obstacle, or will they turn it into an opportunity to lead in sustainable finance?
What are your thoughts? Are banks doing enough, or is there still a long way to go? Let’s discuss.
Interested in ESG and sustainable finance? Let’s connect and explore how we can make ESG work for emerging economies!
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