Navigating ESG compliance in developing countries

Environmental, social, and governance (ESG) performance can be affected by many external factors, including the state of a country. It can be particularly challenging to manage environmental sustainability in a country where resources are low, and regulatory efforts aren’t following the speed of ESG legislation in developed countries. How can a company located in a least developed country (LDC) stand out with its ESG efforts, are these a possibility, and should they be a priority?  

In this article, Enhesa EHS and Sustainability Consultant Leonor Burguete will briefly navigate the challenges companies located in least-developed countries (LDCs) face when aiming for ESG compliance and how to overcome them.

Defining developing countries

According to the United Nations, Least Developed Countries (LDCs), such as Angola, Mozambique, and Bangladesh, are those where: 

– Gross national income (GNI) of the country averages less than USD 1,088 per person 

– The health and education levels in the country (human asset index – HAI) is lower than 60, depending on the index being evaluated (this includes, under-five mortality and adult literacy rate, among others) 

– The Economic and Environmental Vulnerability index (EVI) is 36 or above, calculating, for instance, how isolated the country is and how prone the country is to natural disasters 

This LDC definition was established in 1971 to recognize those countries needing additional support to achieve sustainable development goals.  

As an example, according to these criteria, Angola has a GNI of USD 2,120, but its EVI of 225 puts it at risk due to factors like economic dependence on agriculture and vulnerability to natural disasters, thus classifying the country as a LDC.

Economic growth versus environmental impact

The idea that achieving fast economic results and thriving as a business is tied to environmental degradation is long past us. The stigma between economic growth and good environmental performance has changed in the past few years, and companies are even going beyond compliance to not only find sustainable solutions but also attract stakeholders and bring value to the supply chain. We can say with certainty that sustainability policies dissociate economic development from environmental degradation by promoting green technologies, efficient resource use, and sustainable practices — among other things.  

However, in a world where not all countries have the same opportunities, it’s important to understand the contrast between economic growth (aiming at increased production and higher incomes) and environmental impact (which can result in pollution and resource depletion, among other things), and how to overcome these barriers. 

Challenges for LDCs 

It can be challenging for a company located in a LDC to manage ESG and economic growth, as rapid industrialization and economic expansion can still lead to severe environmental harm, including deforestation, soil erosion, and water pollution. LDCs face the most significant challenges due to poverty, inadequate infrastructure, and heavy reliance on agriculture. Furthermore, these countries usually lack strong sustainability regulations to support and guide these actions.  

Likewise, a developed country has access to smarter resources and technologies, but a LDC often doesn’t, delaying and holding back swifter positive environmental changes and initiatives. Additionally, companies with a strong board, including a gender diverse one, are more likely to obtain better ESG results.  

On the other hand, companies with institutional and dispersed ownership, as well as those located in jurisdictions with underdeveloped legal systems, face more difficulties. For example, in a LDC, strengthening institutional frameworks could be crucial for ESG development as many LDCs struggle with the lack of governmental regulations necessary to enforce ESG compliance.

ESG risks for LDCs

ESG strategies and policies are drivers of economic planning, allowing countries to achieve growth that’s both strong and environmentally sound. 

The struggle with weaker legal systems and resources doesn’t necessarily mean there won’t be rapid economic growth, but this often comes at the expense of environmental health. Deforestation, for example, not only ruins habitats and causes damages to biodiversity but also contributes to climate change by increasing carbon emissions.  

LDCs face several risks and constraints in achieving sustainable development, as well as companies therein located trying to bring up their sustainability initiatives. For instance, limited financial resources compromise investment in sustainable technologies and practices, and poor infrastructure can inhibit the implementation of these practices. As mentioned before — and potentially one of the biggest restraints — a weak legal framework with insufficient laws and enforcement mechanisms are major obstructions to ESG compliance. 

Unstable political environments, limited access to technology, and exploitation of economic opportunities also affect ESG compliance. In LDCs, factors such as low-cost labor and unregulated subjects, for instance, renewable/green energy production, greenhouse gas (GHG) emission licenses, and non-discrimination requirements, can lead to major ESG violations, such as poor working conditions and environmental violations. 

But how can a LDC and companies located therein combat this? What mechanisms are available to achieve sustainable development? This urges political and legislative action from LDCs. However, it’s crucial to ensure international support and investment for LDCs to develop sustainable practices and improve their economic and environmental outcomes.

Adopting sustainable ESG initiatives

It’s important to recognize LDCs’ fragilities to understand ESG opportunities in these countries. As mentioned, regulatory frameworks and enforcement mechanisms are crucial to ensuring good sustainability practices and overall transparency and accountability. For companies, ESG compliance can result in attention from different stakeholders, as well as the global community. 

Moreover, ESG policies can also result in an efficient use of resources, cutting costs and optimizing operations, therefore also ensuring a competitive advantage for the company. It’s been showcased that by implementing sustainable practices to enhance resource efficiency, such as investing in energy-efficient machinery and technologies, companies can significantly reduce energy consumption and operational costs, and gain competitive advantage, even when located in a LDC. 

Investment in education and training to build awareness and strategic opportunities can lead to achieving board diversity. This is strengthened with international cooperation, pushing LDCs to enhance ESG compliance.   

Carbon markets are also pivotal in supporting sustainable development in developing countries. They ensure funds and incentives for countries to invest in green technologies and sustainable practices — such as creating financial incentives for emission reduction projects.
 

Examples of successful sustainability initiatives 

Throughout this article, we’ve come to understand why LDCs struggle with the balance between environmental stability and economic growth, resulting in a long path to achieving sustainable practices. However, some remarkable initiatives have started to mark and lead the way to sustainable growth in these countries.
 

Angola  

In Angola, we can expect to see some motion in ESG matters, especially due to the first Sustainable Investment Facilitation Agreement (SIFA) the EU has signed. The SIFA is due to boost sustainable development in Angola by attracting foreign investment. Its main goal is to make business development and the environment more transparent in Angola, for instance, by making clearer rules and more reliable information for companies. The investments made under the SIFA will align with environmental and climate goals, as well as labor rights, ensuring that companies’ activities support sustainable development. It aims especially to unlock investment opportunities beyond fossil fuels in green energy and critical raw materials.  

Moreover, other frameworks aim to launch Angola’s sustainable development, including the Annual Plan for National Development 2025 (PADN 2025) approved by Presidential Decree 58/25 of 28 February. The PADN 2025 aims to, among others, promote human rights, improve sustainable development, and protect the environment and biodiversity. Despite providing only a regulatory outline, the PADN 2025 could result in more stringent sustainability measures for companies in Angola, including those related to air, soil, and water pollution, as well as renewable energy production.
 

Bangladesh  

In Bangladesh, on 31 January 2025, a letter was sent to the Chief Adviser of the Interim Government of Bangladesh, urging action against violent attacks on Indigenous students during a peaceful protest and highlighting the importance of including Indigenous perspectives in educational materials to foster greater environmental awareness and respect for traditional ecological knowledge. This emphasizes a need for companies in Bangladesh to enhance their social responsibility initiatives, ensuring they support and respect Indigenous communities, adopting inclusive practices that recognize and value cultural diversity, and contributing to a more equitable society. Ultimately, such actions result in transparency and can improve overall ESG performance.
 

Rwanda 

The Global Reporting Initiative (GRI) has announced a collaboration with the African Securities Exchange Association (ASEA) to encourage the use of sustainability data by listed companies across different African jurisdictions. The aim is to increase transparency and accountability in sustainability reporting within African capital markets.  

The Rwanda Stock Exchange (RSE) has partnered with GRI Africa to introduce its voluntary ESG Reporting Guidelines in December 2024, focusing on transparency and attracting sustainable investments. With RSE, companies can publicly disclose their most significant impacts on the economy, environment, and people, including human rights impacts, and showcase how these impacts are managed. Companies can therefore enhance their sustainability reporting, making their operations more transparent and accountable. This attracts sustainable investments, as investors increasingly prioritize transparency and accountability in ESG practices.
 

Nigeria 

Furthermore, in Nigeria, various initiatives are being led by Nigeria’s Federal Ministry of Environment to promote environmental protection, sustainable development, and climate resilience. In particular, the Government aims to achieve net-zero emissions by 2060 and deliver its National Determined Contribution implementation framework following the Paris Agreement.  

Moreover, a national carbon registry is currently under development, aiming to track carbon emissions and facilitate the trading of carbon credits. In the future, this could mean that companies whose activities result in GHG emissions could expect more stringent regulation of such emissions as well as investment opportunities to achieve sustainability targets. 

Tips for companies with operations in LDCs

Despite the difficulties and challenges LDCs face regarding sustainability, strategies and mechanisms can help companies therein located to contribute to overcoming these barriers. International support, such as the SIFA, and strong regulatory frameworks are crucial to ensure both economic growth and environmental stability and sustainability in these countries. It’s of the utmost importance that companies recognize these challenges and opportunities to navigate ESG compliance in a LDC, enhancing their competitive advantage and proving that economic development doesn’t come at the expense of environmental health. 

Companies in LDCs should focus on building strong institutional frameworks and investing in training, education, and sustainable technologies. This will ensure smooth navigation of their sustainability practices and market positioning, benefiting from environmental and economic growth.