Discover how emerging markets combine growth and sustainability to drive meaningful impact.
The Macro Case for EM and Sustainability
Emerging markets are poised to outpace developed economies in the coming year, with economic growth projected to exceed developed markets by roughly 2.5 percentage points in 2025. Analysts forecast MSCI EM earnings growth of about 17% year-over-year in 2025, up from approximately 10% in 2024, reflecting strong earnings momentum.
Valuations at 12.4x earnings, at or below long-term averages and trading at a discount to developed markets, reinforce the appeal of these regions. This combination of higher-growth, lower-valued emerging markets and supportive monetary easing across key central banks such as India, Indonesia, and Mexico creates a compelling backdrop. A weaker US dollar, down nearly 9% in the year to date, adds a currency tailwind that can bolster asset performance.
Investors are discovering mispriced sustainability-linked growth potential in markets often dismissed as too risky. By unearthing these opportunities, sustainable investors can harness the dual benefits of robust returns and positive environmental outcomes.
The Scale and Momentum of Sustainable Finance
The global sustainable investing landscape is on track to exceed $35 trillion in assets under management by 2025. Within emerging markets, members of the Sustainable Banking and Finance Network (SBFN)—spanning 72 countries and representing 96% of EM banking assets—have issued $790.5 billion in thematic bonds, encompassing green, social, and sustainability bonds.
Since 2023, SBFN jurisdictions have introduced 145 new frameworks, including taxonomies, guidelines, and disclosure rules. These measures aim to strengthen ESG and climate risk management, promote transparency, and align local standards with global best practices. Such efforts signify systemic commitment, not isolated projects, reducing policy uncertainty.
By fostering more predictable regulatory environments, policymakers are accelerating the integration of sustainable finance into mainstream banking operations, directing capital toward climate adaptation, renewable energy, and social inclusion initiatives.
Bridging the SDG Investment Gap
Emerging and developing economies face an annual SDG financing gap of approximately $4 trillion. This deficit spans critical infrastructure, climate adaptation projects, and essential social services. Addressing this shortfall will require substantial private capital mobilization, creating a pipeline of investable opportunities in energy, transportation, water management, and social infrastructure.
By filling the $4T gap, sustainable investors can align financial returns with transformational development outcomes, delivering both profit and purpose.
Key Sustainable Investment Themes
- Climate and energy transition
- Nature-positive and agriculture
- Sustainable infrastructure and urbanization
- Social inclusion and SME finance
Climate and Energy Transition
Emerging markets are both high-growth and highly climate-vulnerable, making mitigation and adaptation urgent priorities. Approximately 84% of market participants now believe extreme weather will be financially material within five years. Investors are backing large-scale renewable energy build-out—solar, wind, hydro—and the critical minerals supply chains needed for electric vehicles and grid expansion.
Country commitments vary: India aims for 500 GW of renewables by 2030 and has launched sovereign green bonds. Brazil is channeling funds toward sustainable agriculture and Amazon protection. Taiwan is accelerating its carbon neutrality plan, backed by green growth incentives and technology-driven solutions.
Nature-Positive and Agricultural Opportunities
Transitioning to nature-positive business models could unlock up to $10 trillion in annual business value and create 400 million jobs by 2030. Climate finance for agrifood systems has surged over 300% since 2019, reaching $95 billion annually.
Investors are targeting deforestation-free commodity supply chains and regenerative agriculture, tapping into sustainable yield-enhancing practices and risk mitigation. Coastal ecosystem restoration projects, such as mangrove reforestation, offer carbon sequestration and resilience benefits for vulnerable coastal communities.
Sustainable Infrastructure and Urbanization
Rapid urban growth in emerging markets highlights gaps in transport, water, sanitation, energy, and digital infrastructure. Sustainable infrastructure investments focus on low-carbon transport systems, energy-efficient green buildings, and resilient infrastructure flood defenses to protect against climate shocks.
Green building certifications and renewable energy integration reduce lifecycle emissions and operating costs, offering long-term savings and environmental benefits for developers and tenants alike.
Social Inclusion and SME Finance
SMEs represent the backbone of many EM economies, accounting for the majority of employment. Nearly half of SBFN members have launched SME-focused measures to expand sustainable finance, supporting microfinance, digital payment systems, and affordable housing and healthcare projects.
By driving job creation and inclusive growth, investors can foster social resilience while tapping into markets with strong consumption growth and entrepreneurial innovation.
Instruments for Sustainable Investment
A diverse toolkit of instruments enables investors to allocate capital effectively across public and private markets.
- Public equities aligned with SDGs
- Green, social, and sustainability bonds
- Impact funds and blended finance
Public Equities
Equity investors can select companies with credible decarbonization roadmaps, science-based targets and governance, and robust governance structures. One EM sustainable equity fund reports that 100% of its holdings contribute positively to at least one SDG, and 48% demonstrate strong impact toward multiple goals.
Active engagement allows shareholders to influence corporate disclosures, drive sustainability strategies, and enhance long-term value creation.
Fixed Income: Green, Social, and Sustainability Bonds
EM green, social, and sustainability (GSS) bonds offer comparable returns to conventional debt while channeling proceeds toward environmental and social projects. These instruments share similar financial characteristics to conventional bonds, including coupon structures and credit profiles, but provide added impact transparency and reporting standards.
Impact Funds and Blended Finance
Specialist impact funds combine concessional capital with private investment to de-risk projects in climate adaptation, conservation, and social infrastructure. Blended finance structures unlock commercial financing for underserved sectors, leveraging grants or first-loss capital to catalyze larger pools of private capital.
Innovative partnerships between development finance institutions, foundations, and asset managers are scaling investments in clean energy mini-grids, water purification systems, and workforce training programs.
Conclusion
Emerging markets present a unique intersection of growth potential and sustainability imperatives. From climate transition and nature-positive agriculture to social inclusion and resilient infrastructure, investors have a vast array of themes to explore.
By deploying capital through equities, GSS bonds, and blended finance, stakeholders can earn returns while addressing systemic deficits. Unearthing these opportunities not only fosters financial outperformance but also advances the global agenda for a sustainable and inclusive future. Investors who embrace this frontier will be well-positioned to contribute to, and benefit from, the transformative growth underway in emerging markets.
