With the surge in climate-related incidents in recent years, concern about the sustainability practices of companies has increased rapidly around the world, with the result that sustainability-related risk has become a material business issue.
However, progress varies considerably. While companies in developed economies have made significant progress, the record of those in developing regions is less impressive.
This is particularly true of the oil-dependent economies of the Gulf Cooperation Council (GCC). And given the economic, political and social significance and combined environmental footprint of the GCC states – Qatar, Oman, Kuwait, Bahrain, Saudi Arabia and the United Arab Emirates (UAE) – this lag has considerable implications for climate change.
Poor showing
To explore this further, we carried out research, which was recently published, mapping the sustainability reporting progress of listed companies operating in the six GCC countries in the four years to 2017, the latest period for which full reports were available.
We found that while there was an improvement in sustainability reporting rates over the period, up from 25% in 2013 to 40% in 2017, a significant majority of listed GCC companies (60% in 2017) failed to publish a report. Put into a global context, according to KPMG, by 2019, 90% of North American companies produced sustainability reports, followed by 84% in Asia Pacific, 77% in Europe and 59% in the Middle East and Africa.
The modest improvements reflect governments’ efforts to promote sustainable development and reduce dependency on oil and gas exports
Reducing export dependency
The modest improvements in the GCC reflect governments’ efforts to promote sustainable development and reduce dependency on oil and gas exports. For example, Saudi Arabia, in line with its Vision 2030 programme, has committed to implementing the UN’s Sustainable Development Goals (SDGs) and encourages Saudi-listed companies to publish sustainability reports.
In 2017, the Qatar Stock Exchange launched the Middle East Sustainable Investment Forum, while the Abu Dhabi government introduced its Pearl Rating System, which sets sustainability standards for the construction sector.
While these initiatives are a step in the right direction, they are not mandatory, with the result that companies have been slow to comply. More effort is required by regulatory bodies: in particular, stock exchanges should consider incorporating sustainability reporting in listing requirements and corporate governance codes.
Regional breakdown
The figures for the bloc mask some variation between countries. Qatar and Bahrain lead, with 52% of listed companies engaged in sustainability reporting in 2017 (up from 39% and 41% respectively in 2013). Their high disclosure rates can potentially be attributed to government-led initiatives driving sustainable development.
Saudi Arabia comes next, with 43% of listed companies publishing a sustainability report in 2017, compared with 31% in 2013.
Oman, Kuwait, Dubai and Abu Dhabi, meanwhile, trail behind, with just 34%, 36%, 36% and 37% of listed companies publishing a sustainability report in 2017 (up from 22%, 16%, 20% and 26% in 2013). Thus, while there was an improvement, in most states the vast majority of listed companies failed to publish a report at all.
Sectoral differences
Across different sectors, the picture varies. Our comparison of sustainability reporters by industry showed that 66% of companies in the transportation and public utilities sector published reports in 2017. Finance, insurance and real estate followed, with reporting rates rising from 28% in 2013 to 42% in 2017.
In services and manufacturing, 38% and 36% of companies published sustainability reports in 2017. In retail, mining and construction sectors, meanwhile, only 17%, 26% and 29% respectively published reports.
To put this in a wider context, global sustainability reporting among environmentally sensitive industries in 2017 was around 76%, according to KPMG. Given the significant social and environmental impact of the mining and construction sectors, Middle East companies based in these areas should be encouraged to adopt greater transparency around their sustainability performance.
A concerning trend to emerge from our research was a decline in use of the universally recognised Global Reporting Initiative (GRI) standards framework among listed companies in the GCC region. Just 8.2% used these standards in 2017, down from 11.9% in 2013, compared to 75% among G250 companies (the world’s 250 largest).
Future requirements
Our research showed that despite GCC governments’ commitment to achieving the UN SDGs, a significant majority of the region’s listed companies do not engage in sustainability reporting and thus avoid stakeholder accountability.
Therefore, stock exchanges in the GCC should consider introducing tougher corporate governance requirements, making it mandatory for large listed entities to report on their sustainability practices.
Further, we recommend the use of internationally recognised standards, which regulators should consider incorporating into corporate governance codes. These recommendations will assist in promoting corporate transparency and accountability to corporate stakeholders.
Given the economic pressures created by the Covid-19 pandemic, we expect that, in the absence of stringent government regulations on sustainability reporting, the trends identified in our research are likely to be sustained.
Look out for the second article in the this mini-series, on materiality in sustainability reporting, in the May issue of AB
More information
The accountancy profession has a vital role to play in sustainability and climate action. To find out more, visit ACCA’s new Rethinking Sustainable Business hub and join the Big Conversation on climate action.
