The report captures trends in ESG/Sustainability in six countries and addresses gaps in data availability in the region
Companies in the Gulf Cooperation Council (GCC) region are most driven to incorporate ESG factors by the need to comply with regulations and policies. This is according to The 2022 State of ESG in the GCC report, which highlights the findings of a survey conducted by Sustainable Square Consultancy in collaboration with First Abu Dhabi Bank (FAB) and Middle East Investor Relations Association (MEIRA).
This significant shift from the position in 2018 when companies in the GCC were mostly driven by the need to improve reputation, points to a maturing regulatory environment and a growing sense of corporate accountability in the region, with new guidelines, frameworks, standards and policies for companies to abide by.
The 2022 report notes the top three drivers for incorporating ESG factors as: Compliance with Regulations and Policies (64%), Corporate Values and Culture (43%) and Stakeholders’ Demands (29%). In a similar study of the region conducted in 2018, Compliance with Regulations and Policies, and Stakeholders’ Demands accounted for only 14% and 16% respectively while the two top drivers for incorporating ESG factors and investing in sustainability were to Improve Reputation (21%) and Out of a Sense of Responsibility (19%). In comparison, respondents gave Improving Reputation 15% and Investing Out of a Sense of Responsibility 26% in 2022, indicating a genuine commitment by companies in the GCC to sustainability.
The main respondents of the survey represent six GCC countries: UAE (44%), KSA (20%), Qatar (12%), Oman (11%), Kuwait (8%), Bahrain (5%).
Sustainability Best Practices
Group CEO of Sustainable Square, Monaem Ben Lellahom said one of the main challenges companies in the GCC region face when formulating and implementing their ESG/Sustainability strategies is the lack of data.
“To address the gaps in data transparency in the region, Sustainable Square conducts these surveys of the GCC region to encourage knowledge sharing and to highlight best practices. Oftentimes, data cited is taken from other regions, such as the United States (US) and Europe, thus failing to provide insights relevant to the GCC region. Data cited on the global climate agenda is often generic and does not properly capture the dynamics of this region. As the UAE prepares to host COP28, we hope that this regional survey will give visibility to the work and the trends in ESG/Sustainability in the region,” says Monaem.
The respondent represented a variety of company types, with 53% publicly listed companies, 37% private-owned, 19% multinationals, 19% family businesses, 16% semi government and 8% government organisations. Respondents were from a range of industries, with the financial sector leading at 25%, services sector 8%, food & beverages and oil & gas 7%, industrials & manufacturing, and IT & telecommunications at 6% respectively.
Board Engagement
The survey sought to establish the status of sustainability and ESG practices among companies in the region, identifying the drivers behind them and recognising future outlooks.
According to the report, 51% of the respondents reported that ESG risks and opportunities are discussed at the board level, and that they have an influence on how these businesses operate. Having board level leadership and senior management buy-in helps to ensure company-wide strategic alignment, meet stakeholder expectations, create long-term value and put in place a system for accountability of performance and metrics.
Respondents indicated that the most important factors for the success of the sustainability strategy are Alignment Between Sustainability/ ESG & Business Strategy (54%), a Mechanism to Track ESG Performance (16%) and Board Level Engagement (16%). Existence of ESG Knowledge and Expertise and Employee Engagement scored 9% and 5% respectively.
There is a marked decrease in the number of companies that reported having no sustainability-related strategy in place, from 36% in 2018 to 20% in 2022, indicating that companies are recognising the need for and importance of ensuring the presence of a sustainability-related strategy. Despite the different terminologies used, the majority of companies (80%) have a sustainability/ESG strategy. There is also an increasing interest in net zero strategies and commitments. A larger portion of survey respondents mentioned having a net zero strategy in place alongside another form of strategy.
Budgets for Sustainability
When companies were asked how they disclose their sustainability/ ESG-related information, a vast majority (82%) of survey respondents said they report in the format of a sustainability/ ESG report while 23% use integrated reports.
From 2018 to 2022, we saw an increase in uptake of leading reporting standards such as The Global Reporting Initiative (GRI) 19% and the UN Global Compact (UNGC) 12%. The popularisation and appeal of these standards could be due to several reasons including their credibility, global reach, recognition and reputation and multi-stakeholder involvement.
Future Outlook
Monaem emphasised the need for collaboration in the GCC region, saying that to achieve climate security for future generations, organisations across the board should come together. “We acknowledge our partners, FAB and MEIRA, who have contributed to the success of this report. The work we do now must be collaborative and dynamic to enable us to adapt to the ever-evolving context we operate in. 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 if 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”.
The outgoing General Manager of MEIRA, John Gollifer says, “MEIRA has worked closely with Sustainable Square, our ESG Partner, to produce a timely survey of the GCC markets. With support from our members, including regional exchanges, we have received much input on the state of ESG in the GCC. We urge everyone in our investor relations community to read the report”.
The Group Chief Sustainability Officer at FAB, Shargiil Bashir notes, “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”.
Asked to forecast the trends in ESG Sustainability, respondents said they expect an increase in several aspects namely; the amount of internal sustainability/ESG communication; the amount of external sustainability/ESG communication; CEO & Board of Directors engagement on sustainability / ESG; budgets for sustainability; employee engagement/volunteering in sustainability activities. The respondents predicted a lower Return on Investment from CSR, which could be because companies are allocating a larger portion of their investments and resources into establishing all the necessary sustainability / ESG related structures, thus diverting their investments away from CSR activities and the measurement of the impact of these activities.
