Exporting ESG: Can EU Standards Deliver Fair Sustainability in Global South contexts?

In this blog, ISS Guest Researcher Kim-Tung Dao delves into the effects that European Union ESG (Environmental, Sustainability, and Governance) standards can have on export partners in the ‘Global South’. Whilst ESG regulations are an important tool for the EU to control corporate behavior, they can have unintended consequences on producers, including onerous paperwork, blocking access to markets, and creating hierarchies of knowledge and expertise. Rather than rigid models of compliance, the author argues for a more inclusive and flexible approach that concentrates on transformation.

European Union ESG regulations are reshaping global business practices, but their impact on the Global South remains complex and contested. This blog looks at the economic, social, and environmental dimensions of EU ESG frameworks in countries in the ‘Global South’ and proposes pathways toward more inclusive and equitable sustainability governance that respects diverse contexts and knowledge systems.

The Global Reach of European ESG  Standards

Environmental, Social, and Governance (ESG) regulations have emerged as central pillars in re-shaping corporate behavior toward sustainability, particularly within the European Union. The EU positions itself as a global regulatory leader, and its recent frameworks: the Corporate Sustainability Reporting Directive (CSRD), EU Deforestation Regulation (EUDR), and Sustainable Finance Disclosure Regulation (SFDR)- impose increasingly strict rules on companies operating within or trading with Europe.

While these frameworks aim to foster responsible capitalism and ecological stewardship, their influence extends far beyond European borders, raising a critical question: How do EU ESG regulations shape economic, social, and ecological outcomes in the Global South? Can these standards genuinely promote sustainable development globally, or might they inadvertently entrench existing asymmetries and constrain development pathways in the very regions they intend to benefit?

Economic Development: Opportunity or Exclusion?

Access to Green Markets 

EU ESG regulations can function as powerful catalysts for production upgrading (the process of moving to higher-value activities in global supply chains), enabling firms in the Global South to participate in emerging “green” value chains in EU countries. When effectively implemented, these standards allow exporters to secure long-term access to premium EU markets, differentiate products through sustainability credentials, and capture price premiums for verified sustainable goods. The International Trade Centre has documented how producers aligning with non-tariff environmental and social standards often gain entry to more stable, higher-value market segments, particularly in sectors like specialty coffee, ethical textiles, and certified forestry products.

However, the economic reality for many small and medium-sized enterprises (SMEs) across Africa, Asia, and Latin America reveals a different picture. For these businesses, ESG regulatory compliance costs often represent a significant barrier. The financial burden of certification fees, auditing costs, and infrastructure investments can be prohibitive. Administrative complexity through extensive documentation and reporting requirements strains limited resources. Additionally, many SMEs face technical capacity gaps.  While the EU provides technical guidance documents, these often remain insufficient for practical implementation. The complexity of the regulations and guidance frequently drives SMEs to seek expensive external consultants, ironically often from EU or US firms, creating an additional financial burden and potential dependency that undermines the goal of empowering Global South businesses.

The EUDR starkly illustrates these challenges by mandating full traceability and due diligence for commodities like palm oil, cocoa, and soy. Research by ECDPM highlights how Indonesian palm oil producers, particularly smallholders, struggle with the mounting costs of compliance with traceability protocols (tracking systems). Without targeted support mechanisms, such regulations risk creating a “green barrier” to trade that disproportionately affects the most vulnerable actors in global supply chains.

Social Development: Empowerment or Imposition?

From a social perspective, ESG-driven supply chain due diligence can foster improved labor standards, gender equity, and protections against exploitation. As EU firms face increasing pressure to assess and mitigate human rights impacts across their value chains, this has stimulated rising investment in social infrastructure and monitoring systems. It has also encouraged greater stakeholder engagement with previously marginalized communities and advanced the development of grievance mechanisms and remediation processes (ways to raise complaints and fix problems). The Shift Project notes that ESG regulations can drive positive business and human rights outcomes when paired with effective enforcement and local capacity building. In sectors like cocoa and coffee, EU sustainability demands have encouraged certification schemes and community development programs, as documented in multiple Fairtrade Foundation reports.

However, these well- intentioned frameworks may inadvertently marginalize the very communities they aim to protect when not grounded in local contexts. While establishing fundamental workers’ rights is important, the challenge lies in how these standards are implemented. Many ESG standards emerge from European perspectives and risk disrupting informal economies that support millions of livelihoods, not because workers’ rights are inherently problematic, but because the implementation often lacks sensitivity to local economic realities. These frameworks often overlook local working traditions and traditional governance structures while imposing externally developed metrics that fail to reflect local contexts. In regions like West Africa, cocoa farmers often lack the support infrastructure to meet traceability requirements tied to deforestation monitoring, leaving them vulnerable to market exclusion. Moreover, rigid labor standards, if applied without considering local economic conditions and providing transition support, may displace informal workers without offering viable alternatives.

Environmental Governance: Protection or Appropriation?

Ecological Safeguards

Environmental sustainability constitutes the cornerstone of EU ESG policies. Regulations like the EUDR aim to curb global deforestation and biodiversity loss by demanding verifiable, sustainable sourcing. These measures can catalyze the restructuring of multinational supply chains to prioritize conservation, adoption of more transparent environmental practices, and increased investment in ecosystem restoration and protection. By raising environmental due diligence expectations, the EU is effectively internationalizing its Green Deal ambitions, potentially accelerating global progress toward climate targets and biodiversity conservation.

Sovereignty Concerns

Yet, these ecological gains may come at the cost of local autonomy and environmental justice. As the Rights and Resources Initiative (RRI) and the authors of ‘Pluriverse: a post-development dictionary’ argue, a “one-size-fits-all” model of environmental governance often overlooks Indigenous knowledge systems that have sustained ecosystems for generations. It often ignores local conservation practices that balance human needs with ecological integrity and fails to account for diverse cultural understandings of nature-human relationships. This dynamic can lead to what critics term “green colonialism,” wherein sustainability is imposed through externally defined metrics that sideline plural understandings of environmental stewardship. Furthermore, in many parts of the Global South, livelihoods and ecosystems are deeply intertwined. Forest-dependent communities, shifting cultivators, and pastoralists may find their access to land and resources restricted under ESG frameworks focused primarily on carbon storage and biodiversity indicators.

Toward Inclusive ESG: A  Pluriversal Approach

To ensure that ESG regulation contributes to truly equitable sustainability, fundamental shifts in both process and substance are essential:

Co-creation and Shared Governance

Standard-setting must evolve from top-down prescription to collaborative co-creation. This requires meaningful engagement with diverse stakeholders from the Global South throughout policy design, representation of civil society, smallholders, Indigenous peoples, and local governments in governance bodies, and effective mechanisms for incorporating local knowledge systems and perspectives.

Capacity Building and Transition Support

The implementation gap must be addressed through comprehensive support systems. This includes dedicated funding for SMEs to upgrade practices and technologies, development of accessible and affordable traceability tools training programs that reach marginalized producers, and flexible implementation timelines that recognize different starting points.

Just Transition Integration

ESG frameworks must explicitly incorporate principles of justice and equity at their core. They should balance climate and ecological goals with social development imperatives, use context-sensitive indicators that respect diverse sustainability models, integrate benefit-sharing mechanisms that compensate communities for ecosystem services, and recognize the “pluriverse” of sustainability approaches beyond Global North conceptions.

Beyond ComplianceToward Transformation

EU ESG regulation represents a promising step toward responsible global capitalism, but the promise alone is insufficient. For ESG standards to support equitable sustainability in the Global South, they must transcend box-ticking compliance and embrace deeper, more inclusive frameworks. A pluriversal ESG model, one that integrates diverse knowledge systems, promotes justice, and fosters ecological stewardship, can offer a path forward. This requires humility, dialogue, and genuine co-governance from European policymakers and businesses. Without these elements, ESG frameworks risk reproducing the very inequalities they ostensibly seek to eliminate. The path ahead demands not just technical solutions but fundamental reconsideration of how sustainability is defined, measured, and governed. Only then can ESG truly deliver on its promise of a more equitable and ecological global economy.

 

Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.

About the author:

Kim Tung Dao is a recent PhD graduate of the International Institute of Social Studies, Erasmus University Rotterdam. Her research interests include globalization, international trade, sustainable development, and the history of economic thought.

 

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