In an increasingly accelerated era of globalization, Environmental, Social, and Governance (ESG) frameworks have become very crucial instruments for assessing corporate sustainability and ethical responsibility. Global ESG standards in the form of ratings, reporting requirements and investment guidelines are seen as universally applicable mechanisms for steering towards a greener and fairer economy. Yet underneath this growing consensus there is a hard question: do ESG standards developed in the Global North actually reflect the priorities of the Global South, or are they yet another form in which the developing world is shut out of establishing the terms of participation in the global economy? In a world where ESG frameworks have been hardening into new rules of the game, we need to ask whose standards are being applied and whose realities are being ignored?

Structural Inequality in ESG Standards

ESG is the product of decades of international efforts to weave environmental and social considerations into the governance of corporations  from the 1992 Earth Summit to the 2016 Paris Agreement. The developed world, especially Europe, North America, Japan, Australia and New Zealand has developed increasingly sophisticated ESG regulations with strong institutions and deep capital markets (Singhania & Saini, 2023).

But in the Global South, ESG adoption takes a different shape. Many countries have well established frameworks to follow such as, the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB), but face serious barriers: weak institutions, lack of resources, and in some cases pervasive corruption.

For instance, research indicates that in countries such as Indonesia and Vietnam, ESG policies are mainly adopted for the purpose of reassuring global investors and not reflecting local corporate priorities and demand of local public (Singhania & Saini, 2023). This dynamic reveals an obvious gap: the global standards of ESG rarely correspond with what developing countries really need or value. Too often they are simply an external requirement with which to comply, rather than a tool whose function is to support domestic development. Then the question becomes not whether ESG matters, but who gets to define what counts as sustainable or just, in an enormously unequal global economy.

ESG and Local Realities: Beyond Compliance

Nowhere is this tension more visible than in the social dimensions of ESG. In much of the Global South, poverty reduction, access to education and health, and also basic infrastructure construction are far higher priorities than achieving net zero or meeting diversity quotas in boardrooms. Frameworks of ESG that put more emphasis on reaching global climate goals, without corresponding sensitivity to local social needs risk overlooking these core development priorities. National adaptations of ESG illustrate this point. As an example, South Africa’s Broad Based Black Economic Empowerment (B-BBEE) Act is aimed at redressing the legacies of apartheid and promoting social inclusion, goals which far transcend the conventional ESG yardsticks. In India, too, ESG practices are usually linked with the national goal of poverty eradication and inclusive growth.

In terms of the environment, Global South countries have especially hard choices to make. Often international demands for rapid decarbonization and forest conservation are in conflict with domestic imperatives to promote economic development. For Brazil and Indonesia, among other resource exporting nations, finding a balance between commitments to global sustainability and local economic reality (e.g. dependence on palm oil, soy and timber exports) is a tightrope between two conflicting objectives. Global ESG standards that call for very rapid shifts without any consideration to local livelihoods and employment can inadvertently inflict harm on vulnerable communities.

The Limits and Risks of Uniform Standards

While standardization is promoted in the name of transparency and comparability, uniform global ESG frameworks carry a lot of significant risks for developing countries.

First, these standards are mostly drawn without any consideration to local developmental priorities. For many nations, basic socio economic concerns like jobs, clean water, and also public health are more urgent than granular climate risk disclosures or corporate governance metrics. 

Secondly, compliance costs can become prohibitive, especially for the SMEs that do not have the resources of multinational corporations. The resources spent on navigating very complex ESG reporting requirements takes away scarce capital that would otherwise be channeled to productive investment.

Third, the risk of greenwashing increases when firms introduce ESG reporting mainly for the purpose of signaling to international investors that they are complying to the requirements. Reporting, in such cases, becomes performative, and hides rather than pushes for substantive change. 

Finally, excessively stringent ESG criteria also play the role of new non tariff barriers that could exclude producers from the Global South from the global value chains exacerbating existing structural inequalities.

ESG, Governance, and Global Justice

Increasingly within academic and policy circles, there is a consensus that good, participatory governance is exactly what is needed to make ESG frameworks both locally legitimate, and effective. Engaging civil society, the private sector and government actors in governance models increases the relevance of ESG to local context. This, however, requires a radical shift in what constitutes success with regard to ESG. Instead of measuring success only by compliance with global standards, success should be measured in terms of tangible social and environmental outcomes, like poverty reduction, improved governance, greater environmental resilience and the empowerment of communities. Existing ESG frameworks tend to focus on climate mitigation and corporate governance at the expense of adaptation needs and also the broader socio economic vulnerabilities in developing countries.

In addition, without continued institutional reforms and capacity building, the application of global ESG standards runs the risk of entrenching, rather than eliminating global inequities. Necessary Steps such as strengthening corporate governance and encouraging integrated reporting should be implemented; however, these should be adopted alongside ambitious strategies of national development that put local priorities and agency first.

Toward Fair and Inclusive ESG Standards

In order to attain a more just global ESG architecture flexibility and pluralism are very important. Moreover, regulators in the Global South should be enabled and empowered  to locally adapt such ESG standards to their local contexts and priorities, while at the same time not losing their credibility in global markets. In order for this adaptive approach to succeed, international support, in the form of capacity building, technology transfer and transition financing, is needed.

Most importantly, success in ESG for the Global South should not be limited to reaching the top of global indices and scoring high on externally imposed set of metrics. But instead, it has to be analyzed in terms of real improvements in local conditions: poverty alleviation, environmental quality, resilient livelihoods, and inclusive governance. This calls for a shift from an ethos driven by compliance to one that advocates local agency, innovation and very context specific solutions.

Who Gets to Set the Standards?

The struggle over ESG norms has technical aspects to it, but at its core it is very profoundly political. Whose voices actually shape the global sustainability standards? Whose interests are privileged? Whose realities are made invisible?

If Global South perspectives are not deliberately included in ESG standard setting processes, there is a danger that 'green governance' will simply reproduce the very patterns of exclusion that 'sustainability agendas' are trying to dispel.  To be a real instrument of positive transformation, ESG standards need to be co created by all stakeholders, developed or developing, and reflect the diverse realities of the world.

Without such inclusivity, ESG risks turning into just a new veneer of old asymmetries, a well meaning and good venture that ends up entrenching the same inequities it attempts to tackle.

Conclusion 

The ESG rise is an opportunity and a warning. It offers a very good opportunity to reimagine corporate responsibility as well as global sustainability but only if its governance structures are democratized and its priorities are aligned with the lived realities of the Global South. The Global South must not allow itself to just be a passive recipient of any externally imposed ESG norms. Instead, its actors must assert their voices, shape standards, and also demand frameworks that harmonize global aspirations as well as local imperatives. Only then can ESG become the truly transformative tool that it is meant to be, one that strongly fosters justice, equity, and sustainability for all.