This chapter provides insights from the private sector on navigating risks in emerging markets and accelerating sustainable investment in times of uncertainty. The analysis builds on the discussion hosted by the OECD Development Centre’s Emerging Markets Network (EMnet) during in-person and virtual meetings in 2023, featuring the participation of high-level policy makers, senior business executives and OECD experts. Further insights originate from desk research and bilateral conversations with EMnet members and multinational companies operating in emerging markets.
Business Insights on Emerging Markets 2024
2. Private sector insights on emerging markets
Copy link to 2. Private sector insights on emerging marketsAbstract
Key messages
Copy link to Key messagesEMnet members and partners acknowledged that fostering the stability of regulatory frameworks, streamlining permits and licensing, and enhancing public governance is essential to creating a sound environment for business in emerging markets. Fostering fair competition through modernised regulations, a fair level playing field, and simplified administrative procedures can attract long-term private investment and contribute to sustainable economic development.
Financial market infrastructure needs to be improved by diversifying the investor base, reinforcing investment protection instruments, and advocating for common green taxonomies across regions.
EMnet members recognised that international investors are refining their knowledge of emerging markets by adopting a more granular approach in evaluating individual projects and country profiles. More consolidated green taxonomy frameworks have the potential to reduce transaction costs for investors, making capital markets in emerging regions more attractive. There is a challenge in aligning local taxonomies with broader frameworks, and EMnet companies emphasised the need for commonalities to facilitate cross-border investment while addressing local specificities.
EMnet members and participants considered that regional integration efforts like the African Continental Free Trade Area could catalyse tariff removal and the harmonisation of fiscal regulation. On the other hand, Latin America and the Caribbean (LAC) still presents one of the lowest levels of intraregional trade worldwide, at only 13% in 2021.
In 2023, emerging countries still encounter difficulty in collecting high-frequency macro-economic and project-level data, which often leads to increased due diligence expenses, and further complicates investment evaluations.
EMnet members and partners emphasised the need to enhance risk intelligence and data production, as well as to establish sound channels for information sharing between public and private actors, in order to boost investor confidence and strengthen investment in emerging markets.
EMnet members and partners emphasised the need to integrate gender equality and diversity and inclusion policies, when operating in emerging markets and regard it as a fundamental component of a company’s medium- and long-term strategy to enhance productivity and innovation.
EMnet members and partners stressed the importance of incentivising circular business models, adopting innovative financial tools and implementing key performance indicators to monitor sustainability performance across value chains.
Further implementing sustainable finance mechanisms, such as green, social, sustainable and sustainability-linked (GSSS) bonds, can help accelerate the green transition in emerging markets. To better manage the financial impact of disasters, it is also important for governments to consider new options, such as catastrophe bonds, insurance pools and disaster risk financing mechanisms.
It is essential to design sustainability requirements that align with the capacities of micro, small and medium-sized enterprises (MSMEs), as well as to enhance market linkages between MSMEs and multinational enterprises (MNEs), and increase financial support directed to them. As much as 75% of the financing needs of MSMEs in LAC remain unfunded. Promoting tailored policies to enhance green, digital and social transformations, stimulating public-private collaboration and enabling access to finance are key instruments to support MSMEs in key sectors such as agribusiness.
Taking inspiration from initiatives like the European Union’s Global Gateway, public-private co-investment in innovation, infrastructure and clean energy will be an essential component of the green transition in emerging and developing economies to align investment with effective public policy objectives.
The private sector can support local communities by tailoring sustainable business models, promoting partnerships with local stakeholders and addressing social issues, such as the reskilling of workers and the promotion of diversity and inclusion.
Reform policies and regulations to enhance a favourable environment for investment
Copy link to Reform policies and regulations to enhance a favourable environment for investmentHarmonise policies and enhance regional integration efforts
EMnet members and partners acknowledged that harmonised policies and regulations can facilitate a level playing field by ensuring consistent standards and guidelines for sustainable business conduct. This consistency contributes to reducing uncertainty and compliance costs for companies operating in different markets. By aligning regulations, countries can enhance the transparency and predictability of sustainability requirements, fostering a conducive environment for more sustainable trade and investment. Furthermore, EMnet members and partners emphasised that harmonised policies could incentivise sustainable practices by establishing clear expectations, providing a supportive regulatory framework and facilitating co-operation with public entities and other stakeholders. EMnet members and partners also highlighted the importance of public standardised reporting, which can promote accountability and transparency, enable informed decision making for investors and help build public trust. Advocating for common taxonomies in emerging markets is also important, as it can help increase harmonisation and transparency. In this context, it is necessary to harmonise investment policies and encourage the development of regional production networks. Regional co-operation, policy harmonisation and modernisation are also necessary to ensure economic development in emerging regions. In the case of Africa, the creation of the African Continental Free Trade Area can act as a catalyst for tariff removal and the harmonisation of fiscal regulations between African countries, stimulating intra-African trade and bolstering investor confidence. On the other hand, the Latin America and the Caribbean (LAC) region has one of the lowest levels of intraregional trade in the world, with only 13% of its exports staying in the region in 2021 (OECD et al., 2021[1]). In this context, EMnet members and partners underscored that Latin American governments need to work together to harmonise and co-ordinate investment policies, expanding partnerships with international organisations and development finance institutions to align green norms and regulations and manage the impact of policies adopted in partner countries.
Align national strategies with climate goals
EMnet members and partners highlighted the crucial role of governments in aligning their national strategies with the aspiration of pursuing economic development alongside climate goals. Facilitating green investment such as this also requires enabling conditions and suitable regulatory frameworks. EMnet members and partners advocated for a paradigm shift, recognising emerging regions not just as climate-affected areas but also as potential global green powerhouses. EMnet members and partners identified barriers obstructing green infrastructure investment across regions, primarily rooted in insufficient financial assurances, which are crucial for attracting external capital from private investors. In addressing this, EMnet members and partners emphasised the importance of leveraging established best practices, citing, for example, Kenya’s issuance of the Energy Sector White Paper. While not a regulation in itself, the document serves a crucial role in articulating the national strategy and mobilising unified government support (Ministry of Energy, 2022[2]). Without a comprehensive whole-of-government approach, valuable initiatives risk getting entangled in bureaucratic complexities across various government departments, hindering their efficacy and impact. EMnet members and partners underlined that inducing behavioural change in the private sector is not only feasible but essential and that this needs to be supported by public policies through incentives, sound fiscal policies and investment guarantees. Governments can actively support the green transition by promoting innovative blended financial mechanisms, incorporating incentives, and gradually phasing out fossil fuel subsidies. Finally, the success of the green transition in emerging and developing countries depends on the capacity of their governments to decarbonise regional, urban and rural industries through suitable economic, fiscal and financial incentives.
Streamline regulations and create a level playing field for all actors
EMnet members and partners stressed the need for regulatory updates and streamlined administrative procedures to bolster foreign investment. In the case of the digital sector, these needs coincide with the various challenges that digital infrastructure deployment encounters in any country, which, in some cases, are exacerbated in emerging markets. Some of the barriers to the deployment of digital infrastructure are related to the nature of the market structure itself (monopolies or duopolies) with significant barriers to entry, high capital expenditure, geographical considerations, administrative barriers, access to spectrum, regulatory uncertainty, the varying capacity of clients to afford services and devices in emerging markets and, in some instances, a lack of basic infrastructure, such as electricity. Furthermore, EMnet members and partners stressed the importance of governmental bodies, agencies, and both public and private stakeholders establishing a level playing field to avoid discrimination between foreign and domestic direct investments. EMnet members and partners stressed the importance of fostering a secure investment landscape by encouraging fair competition and breaking down existing monopolies. Recognising the need to protect existing investments from value erosion, EMnet members and partners also highlighted the necessity to mitigate volatility and enhance access to foreign exchange markets when securing loans. Furthermore, governments ought to address security concerns facing companies operating within their domestic markets by actively combatting risks associated with terrorism and sabotage.
Foster regulatory stability to mitigate risk perception
The prevailing high-risk perception associated with legal and regulatory instability poses a hindrance to securing finance from shareholders for sustained investment in emerging markets. In this context, it becomes crucial to cultivate a favourable investment climate by enhancing predictable and stable regulations. In the case of licenses and permits with extended durations, EMnet members and partners emphasised that abrupt changes in regulations and taxation policies can erode investor confidence. Thus, ensuring predictability is paramount to establishing a stable market environment and mitigating risks arising from the disparity between technological advancements and the pace of regulatory development. EMnet members and partners also identified issues related to prolonged waiting periods for permits from governmental bodies and structural deficiencies within regulatory frameworks, especially concerning support for capital-intensive projects. Furthermore, EMnet members and partners underscored how international organisations can play a critical role in defining ethical parameters, pricing standards and regulatory frameworks. EMnet companies indicated how a stable fiscal policy framework could also create the necessary incentives for foreign direct investment (FDI) to flow into emerging markets and accelerate the creation and development of value-added industries.
Enhance risk intelligence, data production and data sharing
Copy link to Enhance risk intelligence, data production and data sharingPromote data production and accessibility to help lower capital cost and boost investor confidence
EMnet members and partners recognised that emerging and developing countries still encounter difficulties in collecting high-frequency macro-economic and project-level data. These data gaps often increase due diligence expenses and further complicate investment evaluations. In the case of Africa, EMnet companies agreed that rating agencies’ representation of African countries could be negatively affected by poor data collection, and the ongoing discussion around establishing an African credit rating agency within the African Union seeks to address this issue (African Union, 2022[3]) (World Economic Forum, 2023[4]). A targeted approach to acquiring further sector-specific data at a granular level is needed in order to better estimate the feasibility of projects and likely return on investment. Despite the ongoing challenges in data collection, EMnet members and partners emphasised a perceptible shift in investors’ scrutiny, moving towards evaluating individual countries and projects rather than adopting a generic view of regional contexts. Recognising the role of data production and accessibility in encouraging investment in emerging economies, the OECD and the African Union Commission (AUC) will soon jointly launch a virtual platform dedicated to investment in Africa (see Box 2.1).
Improve data sharing between public and private actors
EMnet members and partners emphasised the importance of data and information sharing between private and public stakeholders in order to inform sound policy measures and foster dialogue with investors. Such measures should be used to target social and environmental challenges and to enhance economic development. In the context of the green transition, EMnet members and partners highlighted that better data availability on emissions could encourage behavioural changes from companies and citizens alike, as well as foster consensus on the main challenges for climate adaptation and mitigation, the reduction of emissions and the protection of biodiversity. International organisations play an important role in facilitating data exchange and providing guidelines to market actors in emerging contexts. For example, the OECD’s regional capacity building programme on due diligence for Responsible Business Conduct (RBC) in Latin America informs companies and associations about the tools and techniques required to adopt RBC best practices, including OECD sectoral due diligence instruments and international standards that can be applied in the region (OECD, 2023[5]). In the field of gender equality, EMnet members and partners emphasised that policy action can be better informed by utilising the strengths and resources of both the private and public sectors to produce and analyse more high-quality gender data. International certification and standards, coupled with an effective reporting system for data collection, are important elements in mitigating gender disparities. Sharing gender data among companies and utilising existing cross-country measures through social institutions, such as the OECD Development Centre’s Social Institutions and Gender Index (SIGI) (OECD, 2023[6]), can provide valuable insights into the hidden drivers of gender discrimination.
Share success stories to mitigate risk perception
Prevailing risk perception and information gaps can adversely impact investor confidence and heighten the cost of capital. EMnet members and partners agreed that reducing risk perception amid global geopolitical tensions and local uncertainties would substantially help increase investment in emerging markets, where multinational enterprises could underscore heterogeneous experiences. Amplifying success stories can also shift the private sector’s perception of the viability of green projects in such contexts, serving as a powerful tool to boost investor confidence, although conducting adequate risk assessments in developing markets remains challenging. Furthermore, EMnet members and partners emphasised that strengthening investment protection instruments can help mitigate the risks associated with investing in financial tools such as ESG-linked instruments, which could help lower investors’ risk perception.
Box 2.1. The African Union Commission and the OECD’s African Virtual Investment Platform
Copy link to Box 2.1. The African Union Commission and the OECD’s <em>African Virtual Investment Platform</em>The African Union Commission (AUC) and the OECD are collaboratively working towards establishing the African Virtual Investment Platform (AfVIP), a tool designed to catalyse sustainable investment for Africa's productive transformation and job creation. As this development continues, African countries will need to rely less on external development assistance and more on investment, both from within and outside of Africa. Therefore, the Platform aims to support African governments in overcoming key challenges associated with the mobilisation and impact assessment of investments in three ways:
Enhancing awareness and knowledge of Africa's priority projects, ensuring a comprehensive grasp of the investment landscape.
Utilising the convening power and technical expertise of the AUC and OECD, the platform aims to foster the co-creation of timely, comprehensive information on investment, thereby facilitating informed decision making.
Facilitating dialogue for resource mobilisation among African policy makers and their partners, seeking innovative ways to expedite resource mobilisation for impactful investment projects.
By working closely with government representatives and data providers, the platform will generate detailed information and policy-oriented analyses, focusing on improving the quality and impact of investment in Africa. Its key objectives encompass increasing the availability of information on all investment aspects, adapting and co-creating tools with the AUC and OECD, serving as a reference for enhancing investment strategies and providing technical assistance to enhance transparency.
Planned thematic pillars and activities of the platform
The AfVIP roadmap was discussed at the OECD Investment Committee (13 April 2023), at the DEV Governing Board meeting (14 April 2023), at the OECD external committee meeting (May 2023), and at the OECD Council (13 September 2023). It received positive feedback and support from many countries. Under the leadership of the AUC, the roadmap was also discussed and endorsed by the African Union member states at the African Union Ministerial meeting (Specialised Technical Committee) in July 2023 in Nairobi, Kenya. The platform’s planned thematic pillars and activities prioritise specific types of investments in its initial years. These include:
Boosting foreign direct investment (FDI) that strengthens regional value chains and sustainable development by developing indicators and analyses on FDI impact. The platform aims to enable the assessment of decarbonisation, job creation, inclusivity, innovation, and adherence to global standards such as the AfCFTA provisions and OECD frameworks.
Mobilising domestic and regional financial resources for investment, with a focus on infrastructure. Aiming to improve data on domestic and regional financial resources for investment it will analyse trends, success stories, and investment ecosystems, particularly in productive transformation and regional value-chain development, and infrastructure and energy investments.
Source: (AUC/OECD, n.d.[7]), African Virtual Investment Platform (forthcoming).
Box 2.2. Examples of initiatives from the private sector to promote data production and sharing
Copy link to Box 2.2. Examples of initiatives from the private sector to promote data production and sharingBayer Crop Science has partnered with Microsoft to develop cloud-based enterprise solutions that promote innovation and transparency in the agri-food industry. The collaboration aims to enhance data-driven decision making, optimise agricultural processes, and foster sustainable practices to meet the evolving needs of the sector.
Mastercard has developed a Carbon Calculator, that allows users to estimate their carbon footprint based on their purchases. The personalised calculator tracks the carbon footprint monthly across spending categories. It aims at supporting and encouraging positive change by providing tips on how to reduce an individual’s carbon footprint through more mindful spending.
MUFG Bank has collaborated with the Monetary Authority of Singapore in developing “Project Greenprint”, an integrated digital platform that harnesses technology to simplify how the financial sector and real economy collect, access and act upon environmental, social and governance (ESG) data to support their sustainability initiatives. The collaboration aims to offer an enhanced digital reporting solution for both large businesses and small and medium-sized enterprises (SMEs) to seamlessly report their ESG information.
ProFuturo, a programme developed by Fundación Telefónica and Fundación Bancaria “La Caixa”, analyses data to monitor and evaluate the results of its educational programme, a project which has reached 39 countries, benefiting more than 1.2 million children and 334 000 teachers in primary education centres in vulnerable environments across Africa and Latin America, among other regions.
Source: (Bayer, 2023[8]), Bayer collaborates with Microsoft to unveil new cloud-based enterprise solutions, advancing innovation and transparency in the agri-food industry, https://www.bayer.com/media/en-us/bayer-collaborates-with-microsoft-to-unveil-new-cloud-based-enterprise-solutions-advancing-innovation-and-transparency-in-the-agri-food-industry/ (accessed on 11 January 2024), (Mastercard, n.d.[9]), Carbon Calculator: turn purchases into meaningful action, https://www.mastercard.us/en-us/vision/corp-responsibility/priceless-planet/carbon-calculator.html (accessed on 11 Janaury 2024), (MUFG Bank Ltd, 2023[10]), MUFG reiterates commitment to unleash further digital transformation in Asia Pacific during Singapore FinTech Festival, https://www.bk.mufg.jp/global/globalnetwork/asiapacific/ anncts/pdf/apacnews-20231117-01-en.pdf (accessed on 31 May 2024), (Profuturo, 2023[11]), Profuturo Education, https://profuturo.education/ (accessed on 31 May 2024).
Promote sustainable practices to create long-term value
Copy link to Promote sustainable practices to create long-term valueAlign portfolios with socially responsible practices
EMnet members and partners acknowledged that investors are seeking to align their portfolios with socially responsible practices, whether for long-term value creation or the pursuit of a balanced approach between financial and social returns. The ability of these investors to make well-informed decisions depends on the availability of reliable ESG metrics that adhere to recognised international standards. These metrics should encompass a range of factors, including reducing carbon intensity, promoting gender diversity in corporate boards, and ensuring responsible supply chain management. In this regard, EMnet members and partners highlighted three key levers to optimise socially responsible practices: further developing sustainable financial markets, promoting the harmonisation of frameworks and standards for ESG criteria, and developing ESG strategies that incorporate a gender lens and engage top management. The OECD launched a policy paper at the 2022 OECD Forum on Green Finance and Investment, which proposes recommendations to strengthen ESG investment and to accelerate financing of the green transition. This document provides guidance for policy makers and market actors to strengthen ESG investment through the use of quality metrics, rating targets, and frameworks (OECD, 2022[12]). Furthermore, the OECD has developed the Guidelines for Multinational Enterprises on Responsible Business Conduct, providing government recommendations to multinationals on all critical areas of business responsibility, including human rights, labour rights, environmental protection, and anti-bribery and corruption practices. In 2023, the OECD updated these guidelines, expanding the recommendations in key areas like climate change, biodiversity, technology, business integrity, and supply chain due diligence (OECD, 2023[13]).
Adopt a gender lens to investment in emerging markets
Recognising the setbacks caused by the COVID‑19 pandemic on development and gender equality, EMnet members and partners considered it both morally imperative and financially beneficial for market actors to adopt a gender lens approach to investment. Gender lens investing, as defined by the OECD, involves incorporating gender analysis into financial decision making, to generate positive outcomes and sustainable development impact for women and girls. FDI can lead to shifts in the relative demand for labour by gender, impacting employment opportunities and wages of women and men differently. Additionally, FDI can influence other aspects of gender equality and women’s empowerment in the labour market, such as job security, occupational health, and safety. It can also affect women’s access to skills development and career advancement opportunities (OECD, 2022[14]).Gender lens investing typically entails investing in women-owned or women-led enterprises, promoting workplace equity and supporting enterprises that enhance the well-being of women and girls through their products or services (OECD, 2022[15]).
Corporate culture also plays a key role in shaping the gender employment practices of MNEs and is heavily influenced by the values and norms of the MNE’s country of origin. Affiliates of MNEs headquartered in more gender-equal countries tend to be more gender-inclusive than domestic firms (OECD, 2022[14]). EMnet members and partners emphasised the significance of public commitment with specific targets that reflect a gender lens across all aspects of business operations. They stressed that gender equality should not be a mere “tick the box” exercise within ESG strategies but rather a fundamental component of a company’s strategy for enhancing productivity and fostering innovation.
Encourage circular business models
EMnet members and partners emphasised the importance of incentivising circular business models, adopting innovative financial tools and implementing Key Performance Indicators to monitor sustainability performance across value chains. Encouraging suppliers to align with sustainable development goals and creating markets for sustainable goods and services at all levels of the value chain can play a key role in driving this transition. The potential exists to establish circular business models led by the private sector and adapt agriculture towards a more sustainable future, helping to solve historical economic differences between rural and urban areas (OECD, 2023[16]). EMnet members and partners suggested that using fiscal policies that are sustainable and compatible with green transitions and phasing out environmentally harmful subsidies could provide the necessary support for the private sector to achieve sustainability objectives. In order to provide policy guidance on resource efficiency and accelerate the transition to a circular economy, the OECD has launched the “Resource Efficiency and Circular Economy” (RE-CIRCLE) project. It aims to measure the impact of circular economy policies and to provide qualitative and quantitative analysis to stakeholders in OECD countries and a number of emerging market economies (OECD, n.d.[17]).
Implement sustainable finance mechanisms
Sustainable finance experienced setbacks in 2022 due to significant monetary tightening; however, a rebound is now expected. The analysis points towards an increase in financial instruments, such as GSSS bonds, which were projected to reach a value between USD 900 billion and USD 1 trillion in 2023 (S&P, 2023[18]). In this context, EMnet members and partners emphasised the importance of implementing sustainable finance mechanisms for the green transition in emerging markets. Blended finance instruments, as well as GSSS bonds, could enhance access to liquidity and promote more investments in green infrastructure projects. However, understanding and evaluating the economic value of these financial instruments remains challenging. EMnet members and partners stressed the importance of developing sound, sustainable financial mechanisms and providing clear guidelines and incentives for accessing these. Furthermore, governments and policy makers are increasingly acknowledging the significance of implementing effective ESG standards, as well as enhancing transparency around sustainable investment products. The European Union, for instance, is multiplying the number of regulations related to sustainability in business operations, such as the Sustainable Finance Disclosure Regulation, among many others (Eurosif, n.d.[19]). EMnet members and partners stressed that to encourage more investment in ESG-linked instruments in emerging economies, market infrastructure needs to be improved by diversifying the investor base, reinforcing investment protection instruments, and advocating for common taxonomies across regions. For example, strengthening investment protection instruments can help mitigate the risks associated with investing in ESG-linked instruments, which could improve investors’ perception of risk. Discussions showed how progress is already being made to ensure that sustainable finance mechanisms and instruments incorporate concerns from shareholders, investors, and consumers, such as safeguards included in ESG loans, climate bonds and blended finance. Emerging economies are progressing at a fast pace in the field of sustainable finance. In the LAC region, between 2012 and 2021, corporate green finance reached over USD 40 billion in Argentina, Brazil, Colombia, Ecuador and Mexico – making them five of the world’s top 20 destination countries for green transition financing. The region received 17% of global private green finance, equivalent to USD 8.5 billion, between 2018 and 2020 (OECD et al., 2022[20]).
Box 2.3. Examples of initiatives from the private sector to promote sustainable practices in emerging and developing economies
Copy link to Box 2.3. Examples of initiatives from the private sector to promote sustainable practices in emerging and developing economiesBBVA issued, in September 2023, the first sustainable corporate bond to Hochschild Mining Corporation in Peru. The aim is to foster a responsible corporate culture that contributes to environmental, social and governance (ESG) issues and encourages behavioural change within the private sector.
MUFG Bank concluded, in March 2023, the second-largest global social loan for the State Bank of India, equivalent to USD 1 billion, to finance social projects, such as affordable housing and lending for small and medium-sized businesses. This includes support for women entrepreneurs, micro-entrepreneurs, self-help and joint liability groups, and smallholder farms.
Source: (BBVA, 2023[21]), BBVA grants the first sustainable corporate loan to a mining company in Peru, www.bbva.com/en/sustainability/bbva-grants-the-first-sustainable-corporate-loan-to-a-mining-company-in-peru/ (accessed on 11 January 2024), (DHL, n.d.[22]), Breaking down barriers to global trade, www.dhl.com/global-en/delivered/sustainability/gotrade-program.html (accessed on 11 January 2024), (MUFG Bank Ltd, 2023[23]), MUFG concludes landmark USD 1 billion social loan for State Bank of India, https://www.bk.mufg.jp/global/globalnetwork/asiapacific/anncts/pdf/apacnews-20230301-01-en.pdf (accessed on 11 January 2024).
Enable collaboration between multinational enterprises and local SMEs
Copy link to Enable collaboration between multinational enterprises and local SMEsDesign sustainability requirements in line with SME capacities
To foster workable sustainable practices in supply chains, it is essential to adjust sustainability targets, regulations and frameworks to fit the capacity of SMEs. EMnet members and partners recognised the unique challenges faced by SMEs, such as limited resources and capabilities, and stressed the importance of designing sustainability measures that are feasible and proportionate for them. This requires tailoring sustainability targets to the size and capabilities of SMEs and ensuring that they can realistically meet and integrate them into their operations. Additionally, streamlining regulatory requirements, simplifying compliance procedures, and providing clear guidance can support SMEs in understanding and complying with international sustainability standards. At COP26, the OECD launched its Platform on Financing SMEs for Sustainability in order to advance knowledge sharing, data and analytical work, and policy dialogue on sustainable finance for SMEs. This platform brings together governments, financial institutions, regulators, and SME representatives to develop solutions and good practices (OECD, n.d.[24]).
Support SMEs to progress in digital and green transitions
To ensure a fair and inclusive green transition, EMnet members and partners recommended supporting SMEs in agribusiness and other emerging industries. SMEs are crucial economic players as they employ most of the working population in developing countries. Consequently, the population in emerging countries are often highly vulnerable to the effects of climate change due to their high dependence on SMEs in agribusiness and natural resource exploitation. Therefore, governments need to implement adequate policies to address the financial and technical needs of SMEs and to introduce more digital and greener technologies, which can have a positive impact at the local level within these countries. In many emerging and developing economies, SMEs are lagging behind the digital transition, missing the potential benefits in productivity brought by an effective use of digital technologies. Digitalisation can also help with the long-term goals of creating more formal jobs and increasing fiscal revenues. EMnet members and partners stressed the importance of public-private collaboration to increase access to digital technologies for SMEs and rural businesses. Public-private collaboration should also address the issue of access to finance for SMEs, particularly female entrepreneurs and women-led businesses.
Promote market linkages and increase financial support for SMEs
Quality FDI can benefit emerging economies through knowledge and technology spillovers that increase the productivity of domestic SMEs (OECD, 2023[25]). EMnet members and partners highlighted a significant shift in focus, post the COVID‑19 pandemic, towards prioritising investment retention, aftercare services, and investment facilitation in emerging and developing economies. EMnet members and partners also emphasised the necessity of aligning policies aimed at attracting FDI with the interests of local actors, especially SMEs, by introducing incentives and policies tailored to support local businesses. An open, transparent, and non-discriminatory regulatory environment is crucial for attracting FDI that fosters linkages with the host economy. To maximise the benefits of FDI, governments should enhance the diffusion channels of FDI-SME spillovers by encouraging value chain linkages and strategic partnerships between FDI and domestic SMEs. This can be achieved through initiatives such as supplier development programmes or incentive schemes targeting foreign investors (OECD, 2023[25]). Furthermore, private equity funds can play a pivotal role in deciding to invest in SMEs, enabling local companies to scale up their business, such as through new hires and plant expansions. However, some emerging economies, especially in Africa, still face challenges in attracting FDI, primarily due to their struggle to compete on a global playing field, often characterised by lower liquidity and are overall less attractive to investors compared to other regions (AUC/OECD, 2023[26]).
Box 2.4. Examples of initiatives from the private sector to support small and medium-sized enterprises (SMEs)
Copy link to Box 2.4. Examples of initiatives from the private sector to support small and medium-sized enterprises (SMEs)AeTrade Group’s Strategic Investment Alliance was created as an inclusive platform for investors with a common vision to channel finance towards micro, small and medium-sized enterprises (MSMEs) in line with the principles endorsed by the African Union. The Alliance is a “pooled fund” that seeks to attract both impact and sustainable investments to stimulate job creation and inclusive growth for MSMEs in economic sectors, including business products and services (business-to-business [B2B]), utilities, infrastructure, industrial, digitalisation and manufacturing.
DHL’s GoTrade sustainability programme builds on the United Nations’ Sustainable Development Goals to increase the number and volume of SMEs in developing countries trading across borders thanks to capacity building and partnerships with international organisations. This is particularly important when it comes to emerging markets, where SMEs are responsible for the generation of seven out of ten formal jobs.
MUFG Bank, the Asian Institute of Digital Finance (AIDF), CriAT and iAPPS-FundON have jointly developed GreenON – the first ever digital service which uses data to analyse the initiatives of food companies and agri-producers against their sustainability objectives. The platform provides timely and verifiable sector-specific green data for environmental impact assessment. This will also help mobilise green capital for desired projects with improved information transparency.
Source: (AeTrade Group, 2023[27]), Africa Strategic Alliance, www.aetradegroup.com/post/africa-strategic-investment-alliance (accessed on 11 January 2024), (DHL, n.d.[22]), Breaking down barriers to global trade, www.dhl.com/global-en/delivered/sustainability/gotrade-program.html (accessed on 11 January 2024), (MUFG Bank Ltd, 2021[28]), “GreenON” is Asia’s first digital service that lists green credentials of agri-producers under development, https://www.bk.mufg.jp/global/globalnetwork/asiapacific/anncts/pdf/apacnews-20211109-01_en.pdf (accessed on 31 May 2024).
Foster development by building public-private partnerships
Copy link to Foster development by building public-private partnershipsImprove infrastructure by leveraging on public-private partnerships
Public-private dialogue should result in stable investment policy frameworks, more long-term infrastructure investment and sound fiscal policies. EMnet members and partners highlighted the transformative potential of public-private partnerships in conceiving and executing large-scale green infrastructure projects and aligning efforts to combat climate change. Drawing inspiration from successful models, such as the EU Global Gateway, collaborative investment with the private sector in innovation, infrastructure, and clean technologies becomes a pivotal element in steering sustainable growth within emerging and developing economies. Conceived as the Pan-European strategy to boost infrastructure and strengthen health, education and research systems in LAC, the Middle East, Asia and the Pacific, and Sub-Saharan Africa, the Global Gateway aims at mobilising up to EUR 300 billion in mixed investments in the coming years (European Commission, n.d.[29]). In addition, by promoting special economic zones (SEZs), local governments in developing countries can hope to attract foreign investment more effectively and thus overcome structural infrastructure gaps. By developing SEZs, policy makers aim to strengthen the economic development of their countries, especially in lagging regions. Goals include more foreign investment, higher exports and job creation. Importantly, SEZ policies show an increasing focus on indirectly fostering the growth of local industries for greater productivity (UNCTAD, 2021[30]).
Recognise the private sector’s support of local communities
Three main stakeholder groups – companies, governments and communities – must co-ordinate their efforts to further advance sustainable development. Collaboration between governments and local communities and the adoption of mechanisms such as concessions and royalties offer multiple pathways for public-private partnerships and risk mitigation. Multinational companies play a crucial role by tailoring sustainable business models to local contexts, aligning strategies with community needs, capitalising on regional comparative advantages, and forming partnerships with local suppliers and stakeholders. This approach ensures inclusive value chains and creates a conducive environment for knowledge and technology sharing. EMnet members and partners stressed the importance of taking into account the social repercussions of the triple (green, social and digital) transition. This involves addressing the needs of vulnerable groups, paying attention to territories and communities, and prioritising the creation of quality, formal jobs. The effects on the labour market stemming from the green and digital transitions will demand policies that facilitate the reskilling of workers, generate new job opportunities, particularly in rural areas, and provide support to displaced workers and their communities, among other measures. As much as 10.5% net jobs could be created in LAC by 2030 with the green and just transition (OECD et al., 2023[31]). By systematically promoting diversity, inclusion and capacity building through education and training, EMnet members and partners recognised the important challenges and investment associated with workforce training programmes for reskilling and upskilling but also recognised the potential of equipping employees with the necessary knowledge of sustainability and circular business models. EMnet members and partners considered strengthening digital capacity-building efforts an important opportunity, not only to improve digital skills but also to enhance the economic situation of underserved populations. Public and private stakeholders should, therefore, focus on providing relevant and accessible education on digital transformation, financial inclusion and the use of digital tools to all individuals. Capacity-building activities can take the form of training programmes, workshops, and educational campaigns, and all members and partners emphasised the prioritisation of underserved groups such as women, youth and small businesses in these training initiatives.
Align investment with public policy objectives
EMnet members and partners stressed that public-private dialogue is an integral part of the green, social and digital transition, as it is essential to break silos, promote a whole-of-government co-ordination of policy initiatives and involve key external stakeholders. Additionally, governments should promote a constant and flexible dialogue with the private sector, aiming to develop realistic policies that are aligned with the companies’ business capacities and market goals. Without this approach, EMnet members and partners acknowledged that governments may fail to align with the realities of companies and other market actors, thus discouraging further investment and hindering the achievement of climate goals. EMnet members and partners highlighted the need for an alignment between public and private sectors, particularly in areas such as skills development, investment in information and communication technologies and investment regulations. EMnet members and partners encouraged policy makers to actively seek private sector input through consultations, to draw from their experience and leverage their competencies. International organisations can also play a key role in setting common standards to align investment with public policy objectives. The OECD introduced in 2022 a recommendation of the Council on FDI Qualities for Sustainable Development, aiming to support governments in maximising FDI contribution to sustainable development in the areas of productivity and innovation, job quality and skills, gender equality, and decarbonisation. Additionally, it recommends that governments strengthen FDI’s positive impact in developing countries, also by increasing engagement with the private sector and promote multi-stakeholder partnerships (OECD, 2022[32]).
Box 2.5. Examples of initiatives from the private sector to enhance public-private partnerships
Copy link to Box 2.5. Examples of initiatives from the private sector to enhance public-private partnershipsAmerican Tower Corporation (ATC) has launched more than 300 digital communities since 2012 in 8 countries and has committed to building a further 2 000 communities over the next 5 years. These sites, with broadband connectivity and uninterrupted power, aim to increase digital inclusion and access to digital services, providing skills training for jobs, as well as health and financial services to underserved communities, in particular women who do not have access to Information and Communication Technology (ICT) training.
Enel launched a “Hoja de Ruta” programme as part of the study’s roadmap for the energy transition in Latin America from 2030 to 2050. Over 8 countries and 11 000 stakeholders were included in the study, and they contributed through 24 workshops and more than 50 sessions.
Bayer Crop Science’s Better Life Farming (BLF) Alliance helps smallholder farmers and their communities by providing green solutions, information on good agricultural practices, on-farm training and market access, to help them unlock their full potential and promote the development of sustainable farming businesses.
Telefónica’s alliance with Comunidad Andina de Naciones (CAN) recently launched the Conecta Empleo project specifically for CAN citizens in search of employment. People who wish to improve their employability and/or digital skills can access this platform and find free online courses to develop the digital skills currently in demand by employers. To date, the Conecta Empleo platform, as a whole, has benefited over 277 000 people through its virtual referrer.
DHL signed a Memorandum of Understanding with UNIDO in the framework of the 28th UN Climate Change Conference, committing to minimise food waste and shift the paradigms around agriculture, and launched the “Innovation for Food Systems Transformation” global innovation challenge. This partnership aims to enhance food preservation, reduce food waste in African markets, and improve global market accessibility for producers. DHL Group has also teamed up with the International Trade Center’s “SheTrades” initiative to support and train women-led businesses. The initiative has reached over 1 300 attendees from SMEs in African countries, of which 92% were women.
Source: (American Tower Corporation, 2024[33]), Digital Communities, www.americantower.com/digital-communities (accessed on 12 January 2024), (ENEL, 2022[34]), Se presentaron los resultados del estudio “Hoja de ruta para la transición energética en Colombia 2050”, http://enel.com.co/content/dam/enel-co/espa%C3%B1ol/7-prensa/2022/noviembre/resultados-hoja-de-ruta/se-presentaron-los-resultados-del-estudio-hoja-de-ruta-para-la-transicion-energetica-en-colombia-2050.pdf (accessed on 12 January 2024), (Better Life Farming, n.d.[35]), Empowering smallholder farmers with resources for a brighter future, https://www.betterlifefarming.com/who-we-are/ (accessed on 26 March 2024), (Fundación Telefónica, 2024[36]), General Secretariat of the Andean Community and Fundación Telefónica launch 19 free courses for the development of digital skills and competencies, https://www.comunidadandina.org/tag/conecta-empleo/ (accessed on 31 May 2024), (Fundación Telefónica, 2023[37]), Conecta Empleo has more than 17,500 people trained in digital skills in Spain and 277,000 globally, https://www.fundaciontelefonica.com/noticias/cifras-conecta-empleo-2023/ (accessed on 31 May 2023), (DHL Group, 2023[38]), UNIDO and DHL Group join forces to tackle food waste and climate impact, https://group.dhl.com/en/media-relations/press-releases/2023/unido-and-dhl-group-join-forces-to-tackle-food-waste-and-climate-impact.html (accessed on 31 May 2024),
(ITC, n.d.[39]), SheTrades Partner, https://www.shetrades.com/partners/ (accessed on 25 March 2024).
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