The evolution of sustainability strategies of companies operating in emerging markets

Introduction

The last five years has seen a rapid evolution in sustainability strategies for infrastructure and energy companies. We recently conducted a study with the International Finance Corporation (IFC) of more than 100 companies that operate in emerging markets to identify trends in sustainability priorities, reporting practices and how strategies are anchored and financed at these companies.

Methodology

The study included 104 companies across six sectors: Energy, Technology, Media, and Telecom (TMT), Transport, Mining, Water & Waste, and “Cross-Cutting” companies with operations across more than one sector. Data was gathered from publicly available documents, company websites, and databases like S&P Capital IQ and LSEG Data & Analytics. This information was analyzed using a sector performance model developed by KPMG which considered 51 KPIs across Strategy, Governance, KPI & Data Reporting, Environmental, Social, and Community Benefit-Sharing.

Key findings

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Companies are embracing sustainable finance

51% of the companies studied used sustainable finance. Among the financial instruments most used by the companies, green bonds (53%) lead, followed by sustainability-linked bonds (30%) and loans (25%). Moreover, 25% of the companies have sought support from DFIs and multilateral development banks such as IFC, EBRD and ADB. Among the six major sectors these companies are operating, Water & Waste (75%), and Energy (74%) sector companies are leading in terms of the use of sustainability-linked finance whereas Transport sector companies (16%) trail the companies in other sectors.

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Increased disclosure on gender equality data

Most companies have disclosed gender-related data, indicating a growing commitment to transparency and accountability. Standout sectors include mining and energy while sectors with opportunities to enhance disclosures include TMT, transport, water, and waste sectors. Despite increased disclosure and reporting, fewer companies publicly disclose targets for gender diversity. Further, there is opportunity to encourage a comprehensive approach to inclusion that goes beyond gender to include other key areas such as disability, underserved groups and communities depending on the operational and geographic contexts these companies are operating in.

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Decarbonization targets and nature-based solutions

We reviewed company-specific targets across Scopes 1, 2 and 3 as well as whether these were structured as carbon neutral or net-zero targets. The analysis showed that:

Energy sector companies lead in comprehensive emissions targets, with 38% of companies setting targets across Scope 1, 2 and 3.
Transport sector companies demonstrate the highest commitment to carbon neutral & net-zero targets (42%) despite lower scope coverage of carbon emissions.
Data from Water & Waste sector companies indicate only 13% of them reported coverage across all metrics such as carbon emissions across Scope 1,2, and 3 as well as carbon neutral & net-zero targets.

Across all sectors, there is limited progress in Scope 3 reduction targets by the companies analyzed. 44% of companies do not disclose Scope 3 emissions.

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Increasing focus on nature

Companies are increasingly prioritizing biodiversity by integrating it into their operations through conservation, restoration, innovative solutions, and sustainable land management. As part of their resilience strategy, companies are prioritizing nature-based solutions and initiatives that help drive the global energy transition and combat climate change. However, the adoption rate of sustainable disclosure standards on this newer topic remains lower and slower than many others: Only 10 out of 104 companies analyzed are the adopters of Taskforce on Nature-related Financial Disclosures (TNFD).

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Evolving efforts on community benefit-sharing

Based on the analysis of twenty-five companies in energy and infrastructure sectors on their community-benefit sharing efforts, the majority (84%) have been disclosing education and skill-focused initiatives with measurable impact. Other areas include humanitarian support/environmental protection (48%), health-related projects (44%) community climate resilience initiatives (8%).

Across sectors there is also priority placed on disclosing impacts in Latin America and Africa, with a focus on cultural heritage preservation, access to improved infrastructure and services, community-level education, and healthcare improvement, among others.

The path forward: Overcoming challenges and accelerating impact

Companies in emerging markets will benefit from the recent agreement at COP29 in Baku ^[1] that will triple climate finance to developing countries from the previous goal of US$ 100 billion annually, to US$ 300 billion annually by 2035. Moreover, multilateral development banks at COP29 have pledged to increase climate finance for low- and middle-income countries to US$ 120 billion annually by 2030 ^[2].
The decarbonization challenges outlined in the study echo the recent KPMG 2024 CEO Outlook report which found that for 30% of survey respondents, the greatest barrier to achieving climate ambitions is the complexity presented by decarbonization of their supply chain ^[3]. Standardizing metrics and improving transparency in reporting, particularly for Scope 3 emissions, will facilitate better benchmarking and informed decision-making.
Study findings are consistent with our recent “Survey of Sustainability Reporting 2024”, which shows around half of the globally largest 250 companies across 58 countries now report on biodiversity. However, as growth has been slower in the last two years, companies may require technical support to increase their biodiversity and nature-based solutions efforts which would also facilitate access to nature-driven capital sources where needed as well.
As for the gender and social targets and disclosures, transparency related to gender diversity targets could be improved across sectors and gender diversity across all employee categories could be further enhanced within water & waste, TMT, and transport sectors.