Efforts to embed environmental, social and governance (ESG) considerations into finance reflect the recognition that these factors materially shape risk and long-term performance. But progress has been uneven. Climate change has benefited from concentrated institutional effort, while the financial integration of social and governance issues, often most consequential in emerging and developing economies, remains comparatively underdeveloped. As a result, investment decisions may fail to account for factors that are central to performance and resilience in the markets where sustainable finance is most needed.
Sustainable finance has become a defining feature of global capital markets, underpinned by the push to align financial and investment activity with broader ESG considerations. Within this ESG agenda, environmental issues, particularly climate change, have assumed a prominent position. Over time, environmental considerations have become increasingly integrated into investment practices, corporate reporting expectations and broader financial decision-making. In doing so, climate-related objectives have become more visible within financial markets and increasingly central to how capital is allocated.
This represents significant progress, yet sustainable finance has not developed evenly across environmental, social and governance dimensions. Environmental considerations have generally been supported by a more developed institutional architecture comprising measurement approaches, disclosure frameworks and financial mechanisms that enable them to be systematically incorporated into financial decision-making. Although instruments such as social bonds and gender bonds have emerged, the broader institutional architecture for many social and governance priorities remains comparatively less developed. A widely cited explanation is that social and governance outcomes are often more difficult to define, measure and compare than environmental outcomes. While this may account for part of the difference, it may not be the full picture.
A key factor in the growing integration of environmental considerations into financial markets has been the recognition of climate change not only as an environmental concern, but also as a source of systemic financial risk. As policymakers, regulators and investors have increasingly recognised the potential economic consequences of climate change, substantial effort has been devoted to developing the frameworks, metrics and financial mechanisms needed to identify, evaluate and act upon that risk.
Developments such as the 2015 Paris Agreement, the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the emergence of global sustainability disclosure standards have reinforced this momentum. Practical tools such as taxonomies, carbon accounting methodologies and green bonds have, in turn, enabled environmental risks and opportunities to be incorporated alongside traditional financial factors.
Europe has played an especially formative role in translating these broader developments into a coherent sustainable finance architecture through measures such as the European Green Deal, the EU Taxonomy for Sustainable Activities, the Sustainable Finance Disclosure Regulation and the Corporate Sustainability Reporting Directive. Together, these measures have helped establish classifications, disclosure expectations and investment practices through which environmental objectives such as emissions reduction and climate adaptation can be more systematically incorporated into financial markets.
While debate and measurement challenges remain, these developments have provided a foundation for the more consistent assessment and comparison of environmental performance across organisations and markets. This has contributed to environmental factors becoming a more established feature of capital allocation decisions, an approach that has since informed sustainable finance frameworks elsewhere, including South Africa's own Green Finance Taxonomy, which draws directly on the EU Taxonomy.
Yet climate risk exists alongside a range of social and governance challenges that are also financially material. Despite their significance, these dimensions have not received the same degree of attention within sustainable finance as environmental concerns. This gap is particularly consequential in emerging and developing economies, where social and governance factors often weigh heavily on economic performance and investment outcomes.
In South Africa, youth unemployment among those aged 15 to 34 reached 45.8% in the first quarter of 2026, according to Statistics South Africa's Quarterly Labour Force Survey, while the World Bank reports a Gini index of 54.1 (2022), placing the country among the most unequal in the world. These social pressures are compounded by persistent governance challenges, including corruption, weakened institutional accountability and poor public service delivery, all of which erode investor confidence and constrain economic resilience. Together, these conditions shape the risks that investors and businesses face, underscoring the need to embed social and governance considerations more systematically within sustainable finance.
The experience of the climate agenda offers a useful starting point for thinking about how social and governance issues might be more systematically incorporated into sustainable finance. Sustainability issues do not become integrated into financial markets simply because they are recognised as financially material. Rather, substantial effort is required to develop the concepts, measurement approaches and financial mechanisms through which risks and opportunities can be identified, evaluated and acted upon. If social and governance issues are to become more firmly embedded within sustainable finance, a similar level of concerted work will be needed.
Some will argue that this is easier said than done. Social and governance outcomes are often regarded as more difficult to define, measure and compare than environmental outcomes, and there is substance to this view. Unlike greenhouse gas emissions, which can be measured in standardised units regardless of where they occur, social and governance conditions are deeply context dependent. What constitutes material risk in one economy, whether chronic unemployment, institutional fragility or the failure of basic public services, may look quite different in another. This makes the kind of universal standards achieved for climate risk genuinely difficult to replicate, and any serious effort to integrate social and governance issues into sustainable finance must grapple with that complexity honestly.
This complexity, however, also points towards where the solution lies. Because social and governance priorities are shaped by local economic, institutional and social conditions, stakeholders in emerging markets are uniquely positioned to define what is most material in their own economies, and to develop the concepts, measurement approaches, disclosure practices and financial mechanisms through which those priorities can become investable. Rather than relying solely on frameworks imported from Europe or other advanced economies, policymakers, regulators, and investors in emerging markets should take the lead in defining their own priorities, establishing locally relevant standards, and developing the financial mechanisms through which they can be integrated into investment decision-making. Without that initiative, those with the most at stake risk remaining recipients of frameworks shaped by others and designed around different priorities.