Why Sustainability Standards Thrive Where Local Institutions Are Already Strong

This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting-edge ideas and advice for global leaders about emerging markets.

Tommaso Ferretti (University of Ottawa), Ajaykumar Manivannan (University of Leeds), José Carlos Marques (University of Ottawa)

In Short: Recent research by Ferretti, Manivannan, and Marques examines why voluntary sustainability standard organizations (VSSOs) spread unevenly across low- and middle-income economies. Drawing on a study of 131 agrifood VSSOs across 152 countries, the paper shows that these standards are more commonly found not in institutional “voids” but in countries with stronger local trade, financial, and social protection institutions. The findings suggest that VSSOs are most active where domestic institutions help firms access export facilitation, technical support, and credit for standards adoption and upgrading within global value chains. Surprisingly, the strength of environmental stewardship institutions is not significantly associated with VSSO diffusion. For policymakers, the implication is clear: attracting VSSOs and supporting sustainable upgrading may depend less on filling institutional voids alone and more on strengthening the local support system that enables companies to comply with and benefit from sustainability standards.

Voluntary sustainability standard organizations, or VSSOs, are non-state actors (including coalitions of multinational corporations and multi-stakeholder initiatives) that create private regulations to improve the sustainability of international business activities. While VSSOs, such as Fairtrade or Rainforest Alliance, are influential in agrifood sectors like coffee and cocoa, their presence across low- and middle-income economies is highly uneven. For example, VSSO-compliant coffee production remains primarily concentrated in Latin America and the Caribbean, while adoption is more challenging in Sub-Saharan Africa and South-East Asia. Recent research by Ferretti, Manivannan, and Marques examines why VSSOs are more active in some countries than others, focusing on how a nation's institutional environment (the formal and informal rules, processes, and enforcement mechanisms that shape organizational conduct) affects this spread. The central argument challenges the common assumption that VSSOs spread more readily where governance is weak or institutional voids are present. Instead, the findings suggest that VSSOs are often closely tied to the sourcing and CSR strategies of multinational corporations (MNCs) that manage supply chain production. They are most likely to thrive in countries where strong public institutions already exist so as to reduce the costs, risks, and uncertainties of standards adoption by MNCs' suppliers.

By analyzing 131 agrifood VSSOs across 152 countries, the research provides useful cross-national evidence, for instance, in Southeast Asia, domestic provision of effective technical assistance enabled firms and producers to build standard compliance capabilities. In Mexico, cross-sectoral efforts to build ad hoc institutions were crucial for the agrifood industry to develop domestic capacity for adopting transnational food safety standards. Furthermore, the study identifies a strong link between VSSO presence and a country's financial development. Producers need access to credit and investment to upgrade their facilities and practices to meet strict sustainability requirements. Standards compliance requires infrastructural investments, R&D funding, and reliable working capital to sustain the shift to new production practices. Consequently, VSSOs tend to operate in regions where the financial institutions guarantee a relatively larger and higher-quality supply of credit to private businesses.

Social protection institutions, such as those aimed at reducing poverty and protecting workers' rights, also show a positive correlation with VSSO diffusion. This suggests that private sustainability governance is more effective when it can build upon a foundation of domestic social policy. However, the study reveals a surprising finding: there is no statistically significant association between the strength of a country's environmental stewardship institutions and the presence of VSSOs. The authors discuss several possible interpretations, including the possibility that VSSOs may prioritize commercial viability and export competitiveness, that mismatches between domestic environmental institutions and VSSO requirements may hinder adoption, or that environmental governance in many low- and middle-income economies may remain too underdeveloped to interact strongly with VSSO diffusion in the agrifood sector. decision-makers.

The evidence shows that VSSOs are significantly more present in countries with robust trade support institutions and technical assistance institutions. This matters because complying with international standards imposes what previous research calls a “sustainability squeeze” on local producers—burdening them with identifying and mobilizing the additional resources required to develop sustainable products that meet the requirements of MNC buyers. When a government provides good infrastructure, reduces bureaucratic red tape for exports, and offers technical training for firms, it lowers the barriers for these firms to join sustainable trade networks. For

Managerial and Policy Implications 

For policymakers and managers in emerging markets, these findings highlight that attracting global sustainability standards is not a passive process. To remain competitive in global trade networks, governments must proactively strengthen the institutions that facilitate trade, provide technical know-how, and unlock financing. Concrete steps include regulatory reforms to decrease red tape and administrative costs for agrifood exports; enhanced public or public–private programs involving universities and research centers to build firm-level technical capabilities; and improvements to the financial system to unlock access to agri-financing products tailored to producers' upgrading needs. This institutional strengthening is particularly urgent as new international regulations, such as those from the European Union, impose even stricter sustainability reporting requirements on exporters. If a country's local support systems are weak, its companies risk being squeezed by rising costs and may lose access to high-value markets.

Without these supportive conditions in place, opting out of VSSO certification schemes and ‘retreat' to conventional production systems could be the best strategic options for rural businesses. Lastly, because this research is based on correlation rather than long-term tracking of changes, it cannot definitively prove that building these institutions will cause VSSOs to appear immediately. Nevertheless, the patterns suggest that a country's local institutional foundation is a key factor in whether it can successfully integrate into the sustainable global economy.

Original Work

Ferretti, T., Manivannan, A., & Marques, J. C. (2026). Advancing the understanding of voluntary sustainability standard organizations' geographic diffusion: the role of national institutions in global agrifood. Journal of International Business Policy. https://doi.org/10.1057/s42214-025-00233-7

Contact

If you are interested in learning more about this work, contact Professor Tommaso Ferretti at [email protected].