With COP28 just around the corner, ESG is coming to the fore in the MENA, and businesses are beginning to understand the imperative of centring it at the heart of operations.
However, there’s a long road ahead, and understanding the key regional ESG trends and practices is essential to fill knowledge gaps, navigate challenges, and drive progress forward.
To gain insight into how the landscape is evolving, why, and what’s ahead, Sustainable Square Consultancy conducted a survey into the state of ESG in the GCC region, in collaboration with First Abu Dhabi Bank (FAB) and Middle East Investor Relations Association (MEIRA).
ESG Mena takes a look at the report’s findings and what they mean for ESG in the region.
Survey hears from diverse range in business community
The survey, aimed at encouraging knowledge sharing and highlighting best practices, gathered responses from the UAE (44%), KSA (20%), Qatar (12%), Oman (11%), Kuwait (8%), and Bahrain (5%), across a range of company types.
While the majority were publicly listed companies (53 per cent), the survey also heard from private-owned companies (37 per cent), multinationals (19 per cent), family businesses (19 per cent), semi-government (16 per cent) and government organisations (8 per cent).
Further, respondents were spread across a range of industry categories, including the financial sector (25 per cent), services (8 per cent), food and beverage (7 per cent) and oil and gas (7 per cent).
Sustainable Square highlighted the importance of conducting such regional surveys, outlining that typically, data cited in conferences and meetings is concentrated in the US or Europe, while this data presents a clearer snapshot of the situation in the Middle East.
Shifting focus
The report, ‘The 2022 State of ESG in the GCC,’ found that most companies surveyed now have a sustainability strategy in place (80 per cent), although there was a high degree of variation when it came to terminology.
Twenty per cent, meanwhile, still have no strategy in place at all, although this was down from 36 per cent in 2018.
In terms of the key factors influencing the success of sustainability and ESG strategies, it found that the majority highlighted alignment with business strategy (54 per cent), up a considerable amount from 2018 (26 per cent).
This shows that there’s a growing understanding of the importance of overcoming strategic disconnection, and embedding sustainability holistically.
The data also revealed a shift from the 2018 State of Sustainability and CSR in the MENA region, whereby a ‘mechanism to track sustainability performance’ was the most popular choice.
The report highlights that this is due to the development and evolution of various standards and frameworks in the sustainability sector.
In line with this, the report also revealed that the top driver for incorporating ESG factors is now compliance with regulations and policy (64 per cent).
A comparison between 2018 and 2022 also saw an increase in the alignment of sustainability reports to leading reporting standards such as The Global Reporting Initiative (GRI) and the UN Global Compact (UNGC).
It was outlined that both have seen an uptick over the past four years, with a 19% increase for GRI and a 12% increase for UNGC.
Here, it was highlighted that their popularisation could be due to the standards’ credibility, global reach, recognition, reputation and multi-stakeholder involvement. And, while 47 per cent do not currently publicly disclose or report on any sustainability/ESG-related information, nearly 50 per cent (48 per cent) said they are planning on disclosing.
Regional positions & company prioritisations in the net-zero transition
When breaking down how the GCC countries rank with regard to the prevalence and prioritisation of net-zero aspects, the UAE secured the top spot, followed by the Kingdom of Saudi Arabia (KSA) and Oman.
The survey also found that the majority of companies are prioritising the adoption of innovative technology in their transition to net zero (65 per cent). Still, energy efficiency measures were also a key consideration (56 per cent), as well as creating short-, medium- and long-term plans and goals (56 per cent).
Fifty-four per cent of respondents shared that they were focused on reducing emissions across the value chain and deploying renewable energy (54 per cent).
The survey found that companies are also increasingly focused on moving away from the linear economy model, and implementing resource efficiency and waste management initiatives.
Interestingly, when looking at environmental priorities, energy management came out on top (50 per cent), followed by GHG emissions (46 per cent), with climate change coming in third with 42 per cent. Whereas from a governance perspective, 62 per cent believed business ethics to be the top priority. On the social side of things, employee engagement (60 per cent) came before both diversity and equal opportunity (49 per cent) and local communities (45 per cent).
Further, the report identified that more and more companies are now discussing ESG risks and opportunities at the board level. In fact, 51 per cent are now doing so, and 43 per cent of them are having these discussions quarterly.
Incorporating ESG factors
The survey found that an increasing number of companies are now incorporating ESG factors into their businesses, and of this 71 per cent, 69 per cent reported experiencing benefits from ESG implementation.
This ranged from enhanced brand reputation (59 per cent) and long-term value creation (59 per cent) to improved employee engagement (50 per cent), improved investor relations (43 per cent) and improved alignment between business objectives and community (41 per cent).
Challenges to ESG integration & the net-zero transition
While the report showed an encouraging increase in the adoption of ESG and sustainability initiatives and practices, it also highlighted a number of challenges currently acting as obstacles to greater implementation.
Primarily, a lack of standardisation (42 per cent) was cited as a key barrier, as well as a lack of understanding of return on investment (38 per cent).
Education was also underlined here, with 37 per cent citing that a lack of understanding of ESG topics was a top challenge.
With regard to net-zero transition challenges, 42 per cent said they were facing issues, and just 22 per cent said that they were not. Here, companies primarily listed high costs (45 per cent), lack of awareness (39 per cent) and lack of internal resources (35 per cent). That being said, it was also highlighted that a lack of a clearly defined strategy was an impediment to the transition (33 per cent).
The path ahead
While the report highlighted that there’s still a chunk of companies that do not incorporate ESG and sustainability practices, or report on them, the survey identified the potential barriers that are preventing companies from doing so, paving the path toward progress.
Likewise, it was identified that consumers can drive companies to pivot, with 76 per cent noticing a shift in consumer preferences towards companies that adhere to ESG standards.
Indeed, research has shown that consumers are increasingly voting with their wallets, and, at times, are even willing to spend more on sustainable brands.
Looking ahead, respondents expected the biggest shift in their internal and external sustainability and ESG communication, with 75 per cent and 69 per cent, respectively, highlighting that this will increase.
Sixty-five per cent also said they expected greater engagement on these topics from CEOs and Board of Directors, as well as employees (58 per cent).
A smaller percentage (36 per cent) forecasted an increase in return on investment from CSR, while 45 per cent said their budget for sustainability and ESG would increase.
Speaking about the report and what’s ahead, Group CEO of Sustainable Square, Monaem Ben Lellahom, said: “This report provides an up-to-date and comprehensive overview of what the current ecosystem looks like in this region, and we encourage companies to benchmark their sustainability practices on a regional level. The findings of the survey can also be used by governments as a reference point to regulate sustainability performances in the private sector and identify where improvements can be made.”
Shargiil Bashir, Group Chief Sustainability Officer, First Abu Dhabi Bank (FAB), added: “Amongst its findings: the report reinforces why greater access to reliable, timely, and standardised information serves to benefit institutions in managing the risks associated with climate change – specifically, highlighting how business leaders can make more effective decisions armed with this information.”
“I believe this report provides that all-important window into the entire GCC ESG ecosystem, both present and future, serving as a valuable resource to some of the most important current issues in the world of sustainability,” he said.
To read the full report, follow this link:https://sustainablesquare.com/wp-content/uploads/2023/11/State-of-ESG-in-the-GCC-Sustainable-Square.pdf