Corporate GCC must prioritise ESG

From Saudi Arabia to Oman, the governments of the Gulf Cooperation Council (GCC) are waking up to the need to develop environmental, social and governance (ESG) standards. Businesses in the region, however, have been slow to follow. 

An October 2022 KPMG study found that while 96% of the world’s 250 largest firms published sustainability reports, in the Middle East and Africa, only 56% of the region’s top 392 companies released such information in 2021, down from 59% a year earlier. That compared with 89% in Asia Pacific, 82% in Europe and 74% in the Americas.

However, a PwC report released in May this year suggests that with the UAE due to host the COP28 UN Climate Change Conference and sustainability reporting becoming mandatory for listed companies in many jurisdictions this year, guiding investors towards climate-change-resistant investments, the momentum is building in the region: 64% of Middle East companies in the PwC survey had adopted a formal ESG strategy and the number of companies without any strategy had fallen in the 12 months since the previous report.

Get on board

GCC companies that have not yet taken action must get on board as a matter of urgency. This was one of the messages for delegates at the Finance Excellence and Leadership Summit 2023, organised jointly by ACCA and the Institute of Management Accountants (Dubai-UAE Chapter) in May.

‘It is about your business being able to survive 20 years, 30 years, 60 years down the line,’ noted Anu Chaudhary, partner and global head of ESG, at accounting and reporting consultancy Uniqus Consultech, who singled out the oil and gas sector as having ‘an exceptionally important role to play in closing the gap between where we are today and where we need to be by 2050’.

‘To be able to grow your business the way you want, you have to put a mitigation plan in place in advance; that’s what ESG is all about,’ Chaudhary said.

Net-zero commitment

Chaudhary acknowledged that the GCC’s six member states – Saudi Arabia, the UAE, Oman, Qatar, Bahrain and Kuwait – have committed to achieving net-zero by the mid-century, joining more than 230 countries covering roughly 83% of global emissions in making real efforts to combat climate change.

Examples include the 2021 Saudi Green Initiative, which aims to achieve net-zero emissions by 2060, boost the use of renewables to 50% by 2030, plant 10 billion trees and protect 30% of the kingdom’s land against development. Oman, meanwhile, is about to launch its Energy Transition Policy, which could see the country become the world’s sixth largest exporter of hydrogen by 2030.

Move towards reporting

As for sustainability reporting and following international ESG criteria, companies in the UAE and Saudi Arabia, for example, are ‘encouraged to do this’ but implementation ‘is not yet mandatory’, Chaudhary said. However, with voluntary guidance, such as the Dubai Financial Market’s 2019 Guide to ESG Reporting, the ground has been laid for compulsory corporate sustainability reporting. Among large GCC companies, Dubai-headquartered retail and entertainment conglomerate Majid Al Futtaim is one that has already established sustainability reporting systems.

Meanwhile, the UAE government, through the Securities and Commodities Authority (SCA), obliges all public joint stock companies to publish a sustainability report annually, disclosing their ESG impact, commitments and policies, with 130 listed entities subject to this compliance requirement since 2021.

Social agenda

Under the ‘social’ strand of ESG, UAE companies are required to ensure that women are included at a senior level. This follows a 2021 ruling by the SCA that listed companies should appoint at least one woman to their boards, which Chaudhary described as a ‘critical step in narrowing the gender gap’. However, as Bain & Co’s latest report into gender equity in the Middle East points out, women hold just 7% of GCC board seats, lagging well behind the global average of 20%.

Support for business

To support companies in their ESG journey, panel discussions at the summit offered a deep dive into ‘how business can save the planet by achieving net zero’.

At one session, panel chair Eugene D’Souza, the UAE-based head of planning control and information systems for Sony, pointed out that the concept of ESG can be particularly challenging for the region’s large number of family-run businesses. ‘How can ESG apply and make a difference to them?’ he asked. ‘How can we have further uptick in terms of ESG, specifically in entities which are not regulated’ or obliged by law to undertake ESG?

Damian Regan, sustainability reporting and assurance leader, Deloitte Middle East, agreed that family-run businesses remain to be convinced. ‘It is a real challenge to sell ESG to them,’ he said, even though ‘very often, they are dealing with the same consumers, the same supply chain and the same environment, and are recruiting from the same labour pool as listed companies, where the interest in ESG is greater.’

To move towards environmental and social sustainability and make targeted investments to achieve these goals, improvements are needed in the third strand of ESG – governance. Chaudhary stressed that companies need to ‘establish a robust governance framework as this is the foundation for ESG to be successful in any company’. 

She also highlighted the importance of having good data and managing it well.

Changing perspectives

Regan commented that even listed companies need persuading that there is a commercial advantage to ESG. ‘There is an expectation that listed companies have ESG, which is driving at least a recognition of it, but they are still seeing it from a compliance point of view,’ he said. For smaller companies, which may struggle to afford ESG-focused investment, ‘it goes back to fundamentally understanding why it is important to address ESG as a real benefit’.

As illustration, Hala Dahmane, managing director of UAE-based non-profit marine conservation organisation Azraq ME, explained how ESG can protect the Gulf’s fragile maritime environment. Her company runs missions and campaigns to help companies achieve ESG goals, raising awareness among local companies, communities and schools about sustainable practices and environmentally sound ways of dealing with marine debris and other threats to seas and oceans.

‘Marine debris is a big issue in the UAE and across the world due to lack of knowledge and awareness and poor waste management,’ she said.

Yusuf Hassan, a KPMG Gulf partner specialising in IFRS Standards, noted wryly that such work is not always an easy sell: ‘Accountants like to live in black and white, so the green can be difficult to deal with.’