ESG and Labour Practices in Emerging Markets

In the course of my work, I have witnessed firsthand the complex interplay between ESG (Environmental, Social, and Governance) principles and labor practices. The challenges employers face in emerging markets are significant, but so are the opportunities for genuine, positive sustainable change.

With the varied challenges of emerging market economies and currency swings, rapid economic development, increasing foreign direct investment and capital flows, why is this important now?

Africa has a large representation of emerging markets, coupled with a growing young population and increased unemployment rates, what could be the implications of inaction, and what are the practical solutions for driving transformation in labor practices across emerging markets.

In the course of my research, I read the African Development Bank Group report - https://www.afdb.org/sites/default/files/documents/publications/aeb_vol_12_issue_2_fields_reflections_on_africas_employment_problem_f.pdf

·???????? The poverty remains real.

·???????? There are too few well-paying jobs.

·???????? low average earnings for those who do work;

·???????? irregular and casual employment; uncertain work hours in a day;

·???????? uncertain workdays in a month or year; and

·???????? jobs without labor regulations or workplace protections

These points and more makes this situation for these markets a crucial one.

These economies offer immense growth potential but face unique challenges in embedding ESG standards, particularly in labor practices. Addressing these challenges requires collaboration among ratings and framework providers, standard-setting organizations, industry certifications, and regulatory bodies. Indeed they are at a pivotal juncture.

Here's why taking action now is key.

Future Economic Stability and Sustainable Growth

Emerging markets especially countries in Africa have a reliance on labor-intensive industries and natural resource extraction creates economic vulnerability.

Without proactive diversification and labor reforms:

• Economies in these countries may suffer from global market fluctuations due to unmet demand and inadequate supply.
• Resource depletion could destabilize long-term growth and future projections.
• Foreign investment might decline due to poor ESG ratings.

Due to these, employers of labor must take focused action to;

• Invest in Diversification: Encourage industries like technology, renewable energy, and advanced manufacturing to diversify.
• Enhance Labor Standards: Introduce policies that ensure fair wages, safe working conditions, and equitable treatment for Employees, partners and third party employees.
• Leverage Partnerships: Collaborate with global organizations to implement frameworks that incentivize sustainable practices. It is not enough to certify companies, one has to audit them Some are being done but more is required.

"Investing in sustainable practices is not just an ethical choice; it's an economic imperative. Businesses must align labor standards with ESG benchmarks to secure future resilience."

Human Capital Development

As had been earlier mentioned, The workforce in emerging markets represents a vast pool of untapped potential, multigenerational workers and a large pool of young people.

According to Statista Consumer Insights , 1 in 3 people are unemployed in South Africa – this is the highest unemployment rate in the continent. (2024).

https://www.statista.com/statistics/1286939/unemployment-rate-in-africa-by-country/#:~:text=South%20Africa%20is%20expected%20to,percent%20and%2025%20percent%2C%20respectively.

?Unemployment indices remains similar for all other markets in the region. With all the availability of labour, without investment in fair labor practices, education, and skill development:

• A widening skills gap could reduce global competitiveness, pushing the markets further down the economic measures.
• Brain drain could deplete economies of their brightest talents. This is happening across all markets. The war for talent is strongly global.
• Innovation and productivity would remain stunted in these markets creating a ripple effect.

?Employers of labour and the government will need to;

• Upskill the Workforce: Develop vocational and technical training programs aligned with market demands.
• Promote Lifelong Learning: Encourage reskilling and upskilling initiatives to keep pace with technological advancements.
• Foster Inclusion: Create equitable opportunities for underrepresented groups, including women and marginalized communities.

"Emerging markets hold the key to global innovation. Unlocking this potential begins with empowering human capital through equitable and forward-looking labor practices."

Follow the Money - The Business Case for ESG-Compliant Labor Practices

Attracting Foreign Investment

Investors increasingly prioritize ESG compliance. Labor practices that meet international standards:

• Boost an organization’s reputation.
• Enhance access to global markets.
• Mitigate risks associated with unethical labor practices.

Employers of Labour will need to;

• Conduct regular audits to identify gaps in labor compliance in house as well as 3rd Party risks.
• Obtain certifications that validate adherence to ESG principles, such as ISO 45001 for occupational health and safety.
• Transparently report ESG metrics to build investor trust.?

"Transparency in ESG reporting is the cornerstone of building investor confidence and securing long-term capital." — Emma Thompson, Investment Analyst.

Strengthening Brand Value

Ethical labor practices resonate with socially conscious consumers and employees who want to work with purpose. Companies that champion ESG values:

• Differentiate themselves in competitive markets.
• Build loyal customer bases.
• Enhance employee retention and morale.

Here are a few practical actions to take.

• Share success stories of improved labor practices through marketing campaigns.
• Develop CSR programs that visibly impact local communities.
• Engage employees as ESG ambassadors to foster an internal culture of sustainability.

Legal and Regulatory Compliance

Governments and regulatory bodies in emerging markets are increasingly mandating ESG compliance. Early adoption of robust labor practices reduces:

• Legal liabilities.
• Operational disruptions due to non-compliance.
• Penalties or sanctions from international trade partners.

Dont be the police rather encourage better governance and compliance.

• Stay informed about local and international labor regulations.
• Implement robust compliance management systems.
• Train management teams and employees on the importance of ESG integration.

How do we collaborate for Effective ESG and Labor Integration?

Engage Key Stakeholders and strategic partners.

• Government: Advocate for policy reforms and incentivize ESG-aligned businesses.
• NGOs: Partner with organizations that monitor and support ethical labor practices.
• Employees: Involve the workforce in decision-making processes to align with their needs and expectations.

Adopt Technology to provide real time information and accessibility.

• Use AI-driven platforms to monitor labor conditions in real-time.
• Leverage blockchain for transparent supply chain management.
• Implement digital training solutions to reach remote workers.
• Leverage data to build trust and confidence in key actions.

Measure Impact

• Set clear KPIs for labor-related ESG goals, such as reduced turnover or increased workplace safety.
• Publish annual ESG impact reports to maintain accountability.
• Use feedback loops to refine labor practices continuously.

While these are great actions, it is clear that failing to address ESG and labor practices in emerging markets could lead to:

• Economic Decline: Reduced competitiveness and investment.
• Social Unrest: Discontent among workers due to unfair practices including third party employees.
• Global Isolation: Loss of access to international markets with strict ESG requirements.

The intersection of ESG and labor practices is both a challenge and an opportunity for emerging markets especially in Africa. If all parties – particularly employers of labor champion ?fair labor standards, foster human capital development, and collaborate across sectors, we can build more resilient economies and empower our communities. Business leaders, policymakers, and global organizations must unite to drive sustainable change.

"The ESG journey is not just a corporate initiative; it is a societal commitment to a sustainable and equitable future."?

To shape a future where economic growth and ethical labor practices should coexist seamlessly, the journey starts with a single step—what will yours be?

The most recent report on Africa’s Economic Outlook from the African Development Bank can be found here. https://www.afdb.org/en/knowledge/publications/african-economic-outlook#:~:text=Despite%20facing%20multiple%20and%20overlapping,3.1%20percent%20estimated%20in%202023.

Bukola is an HR leader with deep ESG expertise, she advises CEOs and Boards on high-impact, inclusive business environments using HR and ESG strategies that transforms their businesses. She is a Certified Global HR and Talent Director, Governance, Risk and Compliance Professional and a Certified Diversity, Inclusion Executive. Contact for ESG-HR strategy planner for 2025.

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