ESG Standards: Challenges and Benefits for Small Island Developing States

Small Island Developing States (SIDS) stand at the frontline of global climate and economic vulnerabilities. Faced with a complex web of challenges comprising rising sea levels and coastal erosion, to economic dependency on volatile sectors such as tourism, SIDS are increasingly turning to environmental, social and governance (ESG) standards as a potential tool for sustainable development.

ESG frameworks are designed to align investment flows with environmental stewardship, social equity and responsible governance. However, their introduction in SIDS reveals the complications and demand tailored, context-sensitive implementation approaches.

Sophie Webb, Director of Executive ESG, ESG Metrix and Co-Founder of the ESG Literacy Hub in Perth, notes ESG standards provide a pathway to more resilient and inclusive economies. The integration of environmental responsibility, social inclusivity and transparent governance into policy and investment strategies helps SIDS unlock new streams of green finance, improve natural resource management and build adaptive capacities. Aligned with the United Nations Sustainable Development Goals (SDGs), ESG frameworks are increasingly integrated into corporate strategies globally, not only as market signals but also as governance tools to track and steer national progress toward global sustainability targets.

The shifts are not theoretical. New models of delivery are already emerging. Fiji is a regional leader in ESG adoption. In 2024, the South Pacific Stock Exchange and International Finance Corporation, with support from Australia and New Zealand, launched an initiative to help identify environmentally sustainable economic activities that guide public and private investments toward projects aligned with Fiji's climate goals and support sustainable economic growth agrees Shivani Karan, Senior Policy Planning Analyst at the Ministry of Finance, Strategic Planning, National Development and Statistics in Suva.

In Comoros, where environmental degradation and poor infrastructure continue to hinder development, efforts to integrate ESG principles are nascent, but notable. As a least developed country (LDC) and a SIDS, limited institutional capacity has historically been a contributing factor constraining implementation of broad-based reforms, submits James Tsok Bot, United Nations Resident Coordinator in Moroni.

The Comoros Government recently launched a National Quality Policy to improve sustainable development outcomes aligned with the Plan Comoros Emergent (PCE) 2030. This initiative incorporates key ESG measures to enhance environmental standards, improve public service delivery and create conditions for fair competition and innovation. Comoros has also engaged in international frameworks such as the Nairobi Convention, seeking regional cooperation in marine and coastal environmental governance.

Jamaica is another instructive case. The island has struggled to reconcile rapid tourism development with ecological preservation, explains Tracey Edwards, Capacity Building Specialist at the Planning Institute in Kingston. The 2024 opening of the Princess Grand Jamaica Resort involved clearing mangrove forests, sparking public outrage and raising questions on environmental governance. The Jamaican government and civil society have pursued ESG-aligned conservation strategies, such as the Jamaica Mangroves Plus Project, aiming to conserve 60 per cent of Jamaica's public forested wetlands. (See also this broader context on balancing tourism and nature in Jamaica: Reuters.)

Meanwhile, the Seychelles continues to garner global recognition for its innovative ESG financing models. In 2018, it issued the world's first sovereign blue bond, raising US$15 million to finance ocean conservation and sustainable fisheries. Bond proceeds have supported the expansion of marine protected areas, improved fisheries management, and capacity-building for local communities, submits Angelique Pouponneau, an environmental lawyer based in the Seychelles, who serves on the advisory committee to the UN Ocean Decade and is the lead negotiator at the Alliance of Small Island States (AOSIS). Blue Bonds exemplify how ESG tools can be leveraged for national resilience and inclusive growth.

The adoption of ESG standards in SIDS is not without obstacles. Limited financial and human resources hinder implementation in nations with public institutions that are already stretched. Many SIDS face challenges in building the technical capacity required to monitor ESG indicators and enforce compliance. The pressure to meet global ESG benchmarks can conflict with immediate economic needs, including job creation or debt servicing. Foreign investors sometimes impose ESG requirements that do not align with local realities, marginalising traditional practices and small-scale enterprises.

ESG standards hold the potential to address the core challenges facing SIDS, but cannot be imposed as one-size-fits-all models. Stressing the need for standards to guide ESG, Professor Nigar Sultana, who focuses on ESG, sustainability accounting and governance in the Faculty of Business and Law at Curtin University in Perth, agrees it is otherwise not possible to make positive and sustainable impacts. A localised approach that respects indigenous knowledge, builds institutional capacity and ensures inclusive participation in governance processes is essential, explains Nigar. The international community can play a supportive role, providing financing, knowledge transfer and capacity development to ensure that SIDS implement ESG frameworks not only for compliance, but for transformation.

The adoption of ESG in Fiji, Jamaica and the Seychelles highlights how development finance is being reimagined around principles of sustainability, accountability and local ownership. The way forward is not simple, but with coordinated action, targeted investment and a commitment to equity, ESG standards can be harnessed to help navigate the overlapping crises of climate vulnerability, economic insecurity and governance fragility. Rather than reacting to external pressures, SIDS must be empowered to shape ESG agendas that reflect their unique identities, priorities and visions for a sustainable future aligned with the SDGs.