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Overview of ESG Performance in the GCC | |
| Staff Writer |
"There is clear evidence not only that many of the UAE’s financial institutions are already investing in green products, but that that investment is on the rise.”
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As the global economy is reshaping rapidly, the Middle East region has chosen to adopt a healthy strategy to implement the ESR, which enhances clarity and opacity. Over time a mixed response on the tenability of the ESG has been recorded.
In January 2015, the Cabinet of the United Arab Emirates decided to implement the UAE Green Agenda 2015-2030, which resulted from concerted efforts of the federal and local authorities to concretize the UAE Green Growth Strategy.
The Green Finance in the UAE Report (2016) which included a survey undertaken by UNEP FI and the UAE Ministry of Environment and Water, there is clear evidence not only that many of the UAE’s financial institutions are already investing in green products, but that that investment is on the rise.
The report stated ‘The survey generally shows that their positive attitudes to sustainability have already been well nurtured. 25 institutions (31.6%) replied that they already environmental incorporate and social sustainability elements into their overall visions or strategies, and additional 33 institutions (41.8%) are planning to do so in the near future.’
The UNEP FI summarised that if the entire UAE banking sector gained 2% of total profits from green finance, the total benefits would amount to USD 210 million a year.
This could well be the reason why the UAE has most of the Public Sector invested solidly in ESGs while private players found a way to bide their time. And this was not just the UAE but the entire Middle East.
In 2021, the UAE launched the Sustainable Finance Framework 2021, which is the first of its kind in the country is envisaged to enhance the supply and demand of sustainable finance and strengthen the enablers to climate-forward financing initiatives through stakeholder collaboration.
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While listed PJSCs are mandated to share a sustainability report, the fluctuating parameters and the flexibility that the private sector expects in terms of ESG-related investments could prove a stumbling block to a speedy realization of the UAE’s net-zero goal.
However, the good news is that the tide is turning. Take the Kingdom of Bahrain for example. The country joined the UN’s Sustainable Stock Exchanges Initiative in 2019. Shaikh Khalifa Bin Ebrahim Al-Khalifa, Chief Executive Officer of Bahrain Bourse is reported to have said lately, “As a Partner Exchange member of the Sustainable Stock Exchanges (SSE) initiative and a member of the World Federation of Exchanges, Bahrain Bourse has made a formal commitment to drive sustainability in the capital market of the Kingdom of Bahrain. Building upon this initiative, we have issued the ESG reporting guidance to encourage and assist listed companies in disclosing ESG information that investors can utilize to make.”
Kuwait too has solidified its position in the ESG sector wherein its ESG guide now includes recommended sustainability metrics and indicators that will enable market players to comprehend current and future positions. When its latest ESG Regulatory guide was announced, Kuwait’s Head Of Markets Noura Al-Abdulkareem also commented on the launch of the ESG Reporting Guide, saying, “The launch of the ESG guide comes as part of Boursa Kuwait’s commitment to helping listed companies identify and adopt best practices in ESG reporting. As an exchange as well as a listed company, we aim to lead by example in ESG disclosure and implementation.”
Responsible investing and impact investing is slowly but steadily picking up in the region. It has long been proven that companies performing higher on the ESG practices scale have higher financial optimization, lower volatility, higher employee productivity, reduced regulatory and legal interventions (fines and sanctions), top-line growth, and even reductions in their costs and overhead charges. Conversely, the companies that have performed poorly on ESG noticed a higher cost of capital, and higher volatility due to controversies and other incidents such as labor strikes, fraud accounting, and other governance irregularities.
The ESG has only brought good news to the region and should the Middle East continue with its sustained efforts the goal of net zero is not too far off.