How to Deliver on ESG Initiatives in Emerging Markets

Multinational firms are under rising pressure—from investors, regulators, and employees—to demonstrate positive societal impact in the places where they do business. With ESG-focused institutional investments projected to reach nearly $34 trillion this year and roughly 90% of large U.S. companies now disclosing ESG reports, these pressures are now a central part of corporate strategy. However, in “frontier markets” like Africa where stakeholders are deeply skeptical of the narrative of “doing good,” positive intentions and glossy impact reports do not guarantee local buy-in. Some initiatives even backfire, triggering protests, social media campaigns, or political pushback. This points to a fundamental disconnect between how firms and local stakeholders define real and meaningful impact. To understand why efforts to provide a positive impact sometimes fail to gain local trust, our research team conducted a six-year field study that was recently published in the Journal of International Business Studies. In our research, we tracked the experiences of subsidiaries of 17 foreign multinationals across seven East African frontier markets (Burundi, DRC, Kenya, Rwanda, South Sudan, Tanzania, and Uganda). Our primary data came from interviews we conducted with a total of 853 people, plus extensive on-the-ground observation. We sought to understand how impact is viewed from a variety of perspectives, including those of expatriate and local employees of MNEs and NGOs, government officials, and members of the general public. Importantly, our research team was composed of both regional insiders with deep lived experience in East Africa and outsiders who have studied multinationals across contexts, helping us to see both sides of the tensions between firms and their host communities. Our findings show that the firms that were most successful had managers who recognized that frontier market stakeholders evaluated “impact” differently from stakeholders in the developed economies where many of these firms were headquartered. Pressing social issues relating to poverty, education, and health combined with a lack of local government capacity meant that people did not just expect foreign firms to provide a better product or service, but instead a better life. As a result, local individuals were highly attuned to the signals that firms sent—sometimes unintentionally—about whether they were serious about broader impact. A Checklist for Winning Local Buy-In Based on our findings, we uncovered cues that local stakeholders use to decide whether a foreign investor is actually “walking the walk”—or just “talking the talk”—when it comes to providing actual, tangible societal impacts. To make these complex expectations actionable, we translate them into a mnemonic checklist based on the African idea of UBUNTU—“I am because we are”—which we chose because it reflects the community-centric way many stakeholders in our research talked about impact. Useful skills. Are you providing more than just jobs for now, but also useful skills for the future? Invest in hands-on training and human capital development that leaves workers better off in the long run. A Ugandan researcher we interviewed described the situation in their country: “There are millions of youths who are unemployed; they are ambitious, they want to learn and compete successfully. So, one way for a foreign firm to address this youth unemployment is not to see it as a problem but as an opportunity to … invest in some of the most innovative knowledge such as digital skills, apprenticeships, youth entrepreneurship, and self-employment.” Benefits for everyone. Are your actions benefitting many people, or just a select few? An expatriate executive at a telecom firm lamented the reputational consequences of failing to reach lower-income communities: “We remain ridiculed by many rural dwellers engaged in informal trades. We are not popular because our mobile costs for this untapped market are too high!” However, a focus group of street vendors in Burundi praised a different foreign telecom firm that successfully expanded beyond urban elites and enabled simple, low-bandwidth payment tools that worked in remote villages. Understanding from stakeholders. Do local stakeholders see, understand, and buy into what you’re doing? Communicate in accessible ways, report honestly on trade-offs, create mechanisms for feedback, and involve local individuals as active partners rather than passive recipients. Expatriate managers acknowledged that building legitimacy requires more than compliance or philanthropy—it requires genuine engagement. As one executive described his company’s approach: “It is the youth whom we invite to some of our IT incubators in Rwanda to develop new services that may not be available elsewhere.” Need for agency. Are you promoting empowerment and self-reliance, or creating dependence? Give local partners real voice in decisions and avoid arrangements that keep communities reliant on your company alone. Our interview subjects stressed the desire for a hand up, rather than a handout—a focus group participant in the DRC explained that when this happened, “then people would feel empowered socially and economically as a community … and then finally [as] a nation.” Tailored solutions. Are you deploying custom solutions, or importing what worked elsewhere? Tailor products, business models, and engagement to local conditions, rather than copy-and-pasting from richer markets. A focus group participant in DRC stressed that if a firm can “speak their language, learn what their cultural beliefs are, how do they want to talk and take action … the impact will be sustainable.” Importantly, we found that it was the foreign firms’ local workers—who had one foot in the firm and the other in the local community—who could serve an important role in bridging the gap and successfully bring together the firm and the community. Unified strategies. Are your policies for impact isolated from—or integrated with—the core strategy? One expatriate manager told us reputation “depends on how much we give back through CSR”—but this view clashed with local expectations for engagement and impact not just through CSR projects but also through core business practices relating to hiring practices, product features, and human capital development. . . . One NGO employee in our study compared foreign investors’ challenge in building a positive reputation for impact to crossing a river barefoot, one that is full of both sharp and smooth stones. You can get to the other side safely, but only if you feel your way carefully, step by step. This is not an easy process—as an expatriate bluntly put it: “To be honest, reputation building is one of our most difficult tasks in Tanzania … it would even be much harder if we were to operate in less stable countries … like South Sudan and DRC.” Our research suggests that in African frontier markets, foreign firms that learn to “feel the stones”—such as by assessing themselves against the UBUNTU checklist—will be far more likely to overcome these challenges and earn a durable reputation for providing a positive impact in regions of the world where their impact is greatly needed and desired.

How to Deliver on ESG Initiatives in Emerging Markets

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