Bridging the Green Divide: Why Emerging Economies Hold the Key to Global Sustainability

The Global Green Paradox

The sustainable finance revolution is gathering speed. ESG-linked assets surpassed $30 trillion globally last year, yet over 80% of that capital remains concentrated in the wealthiest economies. From London to Tokyo, “green” portfolios are swelling — but the carbon reductions most critical to meeting global targets lie elsewhere.

“Decarbonization can’t happen where the money already is,” says Lina Karanja, Head of Sustainable Investments at EastAfrica Capital Partners. “It must happen where the emissions trajectory is steepest — and that’s in emerging and frontier economies.”

This paradox sits at the heart of climate finance: the global south has the need and the potential, but not the capital.

Lina Karanja
Head of Sustainable Investments, EastAfrica Capital Partners

“Decarbonization can’t happen where the money already is. It must happen where the emissions trajectory is steepest — and that’s in emerging and frontier economies.”

The Geography of Green Capital

In Africa, Southeast Asia, and Latin America, sustainable investment is growing, but unevenly. According to IMF research, these regions collectively require over $1.3 trillion annually to align with Paris-agreement pathways — yet they attract less than one-tenth of that amount.

Dr. Rafael Mendes, a climate economist advising Brazil’s development bank, describes the imbalance as “a mispricing of sustainability risk.” He explains that ESG metrics calibrated for the European Union’s taxonomy tend to undervalue informal markets and overemphasize disclosure precision. “The absence of perfect data isn’t the absence of opportunity,” Mendes notes. “It’s a gap waiting for innovation.”

Dr. Rafael Mendes
Climate Economist, National Development Bank of Brazil

“The absence of perfect data isn’t the absence of opportunity. It’s a gap waiting for innovation.”

When ESG Frameworks Don’t Fit

Most ESG frameworks were designed for corporate environments with robust disclosure laws, transparent supply chains, and deep capital markets. In emerging economies, informality — smallholder farms, family-run enterprises, community cooperatives — is not a weakness but the economic backbone.

Yet these structures are largely invisible to ESG rating agencies. That means sustainable agriculture in Ghana, off-grid solar in Vietnam, or low-carbon transport in Colombia may fail to qualify for “green” labels, even when their environmental impact is profound.

Sophie Tan, Managing Director at Horizon Climate Capital (Singapore), points out that “frontier economies aren’t high-risk by default — they’re under-measured.” Her firm deploys AI-driven ESG analytics that use satellite imagery and real-time environmental data to model performance in markets with limited reporting infrastructure. “We don’t need to lower the standards,” Tan adds. “We need to broaden the lens.”

Sophie Tan
Managing Director, Horizon Climate Capital, Singapore

“Frontier economies aren’t high-risk by default — they’re under-measured. We don’t need to lower the standards; we need to broaden the lens.”

The Role of Global Institutions

The IMF and World Bank have both embraced the concept of a “just transition” — financing models that balance climate goals with social equity. Their recent frameworks emphasize concessional lending, de-risking mechanisms, and blended finance structures to attract private capital into public climate projects.

Lina Karanja

“Public institutions are setting the stage, but private investors must act the part. Without scalable private flows, the green transition in emerging markets remains theoretical.”

However, experts argue that more coordination is needed. “Public institutions are setting the stage,” says Karanja, “but private investors must act the part. Without scalable private flows, the green transition in emerging markets remains theoretical.”

Re-Pricing Risk, Re-Imagining Opportunity

Currency volatility, inflation, and governance risks undeniably complicate green investment in developing economies. But to treat them as deal-breakers is to miss the structural transformation underway. Frontier markets are incubating the next generation of decarbonization technologies — from geothermal micro-grids in East Africa to reforestation fintech in the Amazon Basin.

As Mendes frames it, “The green premium is being paid in London; the green value is being created in Lagos.”

If global investors can recalibrate their risk models — integrating local data, regional expertise, and new digital verification tools — they will uncover a more accurate picture of both risk and return.

Dr. Rafael Mendes

“The green premium is being paid in London; the green value is being created in Lagos.”

Sponsor Highlight

SPONSORED

In collaboration with Travel & Invest Global, an investment and global mobility concierge consulting service dedicated to sustainable investment across frontier and emerging economies. Through data-driven ESG portfolios and on-the-ground partnerships, Travel & Invest Global connects HNWI investors to high-impact projects in Africa, Southeast Asia, The Caribbean, Eastern Europe, parts of the Middle East, Central and Latin America — bridging the gap between ambition and action.

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The Closing Perspective

The future of sustainable finance will not be determined by how much green capital exists — but by where it flows. Unless capital markets evolve beyond familiar geographies, the transition to a net-zero economy will remain incomplete.

Bridging the green divide isn’t charity; it’s strategy. The investors who understand that first will own the frontier of sustainability.