It was recently found that the majority of FTSE 100 companies are failing on credible climate transition plans. According to Ernst & Young Global (EY), while over 80% have pledged to go green by 2050, 95% have not published “credible” plans.
With “half of humanity” in the geographical danger zone, it’s never been more important for companies to get real about climate change, and good governance will be key in driving this. The new wave of global green directives, and regulatory measures are paving the path to greater sustainability compliance, but are they enough of a deterrent to counter climate inaction, and how does the landscape compare in the MENA?
A lack of commitment to climate action
Nearly 18 months ago, the UK Government pledged that UK-listed businesses would be mandated to publish clear and deliverable climate transition plans by 2023. The figures released by EY at the beginning of April show that only 5% of FTSE 100 have done so, validating the fears of many environmental campaigners and activists that no compliance mechanism for this currently exists. Further, the government is yet to share a deadline regarding the mandate.
Analysis by EY revealed that although 78% of companies had shared what are considered partially-developed plans relating to achieving net zero emissions by 2050, what is lacking is a clear plan on how they aim to achieve that goal. However, worryingly nearly 20 per cent of companies have not yet reached this stage, and are yet to publicly disclose any plan whatsoever.
Indeed, even the 5% which have disclosed clear and actionable transition plans were found to be lacking in a number of areas, including financial planning and the definition of financial metrics and targets.
Arguably more action is being taken against FTSE 100 companies by environmental groups than the government itself, which has also been found to be falling behind on its climate plan. ClientEarth, an environmental law charity, for example, recently launched a lawsuit against Shell directors for failing to prepare the company for the climate transition. The case is the first of its kind and likely won’t be the last.
Unpacking the “credible” criteria
The TPT Framework is the criteria used to determine the compliance level of companies and was launched by HM Treasury in April 2022 as a gold standard for private sector climate transition plans. The framework was created based on the recommendations of the Task Force on Climate-related Financial Disclosures and the International Sustainability Standards Board and includes a number of different elements:
- Foundation,
- Implementation Strategy,
- Engagement Strategy,
- Metrics & Targets, and
- Governance.
EY analysis found that the ‘Foundation’ stage was where FTSE 100 companies excelled, with 78% adherence. This stage involves companies outlining transition objectives, priorities, milestones, and implications for business modelling. However, the “Implementation Strategy” stage, which requires companies to disclose their roadmap of short, medium, and long-term actions toward their transition plans, planned changes to products and services, the financial implications, internal policies, and sensitivity analysis, was where companies failed to deliver. Just 11% published some of the required elements in this stage.
BSA Associate Maroun Abou Harb outlines that these figures have wider implications in the context of the current ESG reporting landscape in the MENA region. “This raises questions about how large firms and companies in the region compare regarding credible transition plans,” he said.
Meanwhile, Monaem Ben Lellahom, Partner and Group CEO at Sustainable Square Consultancy, highlighted the urgency of the climate crisis and the need for companies to “take action” to address their environmental impact.
Plans in place of pledges
So, how does the situation compare in the Mena region? Until recently, the region was lagging behind significantly on sustainability reporting, ranking last in the global context. Researchers in 2021, for example, mapped the sustainability reporting progress of listed companies operating in GCC countries in the four years leading up to 2017, and found that while there was a marked improvement between 2013 to 2017, with sustainability reporting rates increasing from 25% to 40%, the majority of listed GCC companies still failed to publish a report.
More recently, Clarity AI found that in the MENA region, companies still disclose the least when compared with Europe, North America and Asia Pacific. Further, it was found that while the region matched other regions regarding energy consumption reporting, it lagged on CO2, Scope 1, Scope 2, and waste recycling reporting. Commenting on this, Ben Lellahom said that while the issue of climate change is “particularly pressing” given the region’s vulnerability to its effects, ESG reporting is still in its early stages in the region. “While some companies are starting to report on their environmental impact and sustainability efforts, there is still a long way to go in terms of transparency and accountability,” he said.
Echoing these sentiments, Abou Harb said that the MENA region is currently facing a significant challenge in “catching up” with other developed nations in terms of assessing and responding to environmental issues. “While there is growing awareness and interest in environmental challenges in the region, the level of sophistication and maturity in reporting and response mechanisms is not yet on par with that of more established regions, particularly in Europe.”
“It is crucial for stakeholders in the MENA region to prioritise and invest in advancing their environmental reporting and response capabilities to effectively address the growing environmental challenges in the region and contribute to global sustainability efforts,” he said.
Aside from reporting, successive COPs in the region mean that there is an ongoing effort to mobilise companies to realise the convention’s net-zero objectives; likewise, different financial bodies are supporting this in various ways. Ben Lellahom pointed to the adoption of the Sustainable Stock Exchanges Initiative (SSE) by all the exchanges in the region, which he explained aims to promote sustainable and responsible investment practices. Ben Lellahom emphasised that good corporate governance is essential to ensure companies prioritise their sustainability efforts and adhere to best practices in reporting and disclosure.
He highlighted that in the UAE, the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM) have implemented “various governance measures,” including the Corporate Governance Code for listed companies, which includes guidelines for sustainability reporting featured in an ESG Manual. Yet, despite this, he said there is still room for improvement: “Particularly in terms of ensuring that companies are held accountable for their sustainability commitments.”
“Real, impactful transition plans involve setting ambitious goals for reducing emissions and implementing measures to achieve those goals. This can include investing in renewable energy, improving energy efficiency, and transitioning to low-carbon transportation options. It’s also important for companies to engage with stakeholders and be transparent about their progress toward meeting their sustainability targets,” he said.
Ben Lellahom added that the benefits are twofold: companies that prioritise sustainability and transparency will “be better positioned” to meet the challenges of the climate crisis and more likely to attract responsible investors who value environmental and social responsibility.
Abou Harb noted that in the MENA region, the appeal of ESG is becoming more apparent as ESG considerations increasingly shape the global capital access landscape. He said the challenge now lies in businesses effectively implementing ESG strategies across their operations, supply chains, and value chains. This, he said, requires a comprehensive and integrated approach that goes beyond “mere compliance” and instead incorporates a “deep commitment to sustainability principles.”
Adding: “Businesses that successfully integrate ESG into their core strategies and operations stand to reap numerous benefits, including enhanced brand reputation, improved financial performance, and stronger relationships with stakeholders. Moreover, they will play a crucial role in promoting a more sustainable and equitable future, one that recognises the importance of balancing economic growth with social and environmental responsibility.”