ESG’s Appeal Fades in Emerging Markets as Profit Eclipses Virtue

Sustainable investments in emerging markets are facing a reckoning as environmental, social and governance strategies crumble under the weight of ongoing capital outflows and the appeal of higher-yielding energy bonds.

ESG investments in developing nations have floundered over the course of the past year, with emerging markets recording a third year of consecutive outflows, largely due to tighter global monetary policies in both developed and emerging economies.

Even as interest rate cuts by the Federal Reserve promise new capital flows into developing economies, backers of sustainable debt confront a harsh truth: Spearheading this year’s returns are bonds issued by borrowers ...