Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
Asia House’s Celine Madaghjian discusses ESG reporting guidelines across the Gulf, examining their progress and the challenges that remain ahead of COP28
Key takeaways
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Introduction
Environmental, Social, and Governance (ESG) reporting in the Gulf has gained traction in recent years. Investors, employees, and customers are increasingly evaluating a company’s ESG reporting to examine the impact on the world, particularly on environmental sustainability. This has prompted the introduction of reporting guidelines for firms listed on Gulf exchanges, and the Gulf Cooperation Council’s (GCC) commitment to creating unified ESG disclosure standards for locally listed entities. However, the adoption of ESG reporting is stymied by the lack of standardised reporting frameworks, regionally and globally. The uptake of ESG reporting is also undermined by differing regulations across the Gulf.
An overview of ESG Frameworks in the Gulf
The Gulf countries have put in place different ESG reporting frameworks, with some being mandatory and others optional. Saudi Arabia, the UAE and Bahrain have the most comprehensive frameworks, whereas Kuwait and Qatar’s frameworks are still developing. ESG reporting guidelines in Oman are still in their initiation phase.
In 2021, the Saudi Arabia stock exchange Tadawul announced sustainability disclosure guidelines for listed companies to promote greater ESG reporting. The guidelines provide support and raise awareness regarding the importance of ESG, seeking to help listed companies improve their ESG performance and be in line with the UN Sustainable Stock Exchanges model. The Saudi Stock Exchange 2022 to promote international ESG standards by creating channels that Saudi firms can use to invest in cultural and heritage projects.
The Kingdom’s Capital Market Authority (CMA) has also issued corporate governance regulations that address critical ESG areas such as conflicts of interest, board member responsibilities, internal auditing, and social responsibility initiatives. Publicly listed companies are also required to publish non-financial ESG reports. Moreover, the CMA issued the Corporate Governance Code in 2023, highlighting standards for board directors, disclosure requirements, and shareholder rights. The code aims to increase accountability, improve foreign investment, and protect investors.
In the UAE, listed public joint stock companies on the Abu Dhabi Securities Exchange and Dubai Financial Market (DFM) are obliged to publish a sustainability report annually that outlines their long-term strategy and impact on ESG and the wider economy. These firms must also comply with the Global Reporting Initiative standards and the United Nations Sustainable Stock Exchanges Initiative.
The DFM has launched its 2025 Sustainability Strategic Plan to promote ESG best practices among listed companies and become the region’s leading sustainable financial market by 2025. The plan’s four pillars include Sustainability Reporting and Disclosures, Sustainable Investment Education, Green Products and Listings, and Gender Balance and Empowering People. A dedicated Sustainability Committee will increase ESG reporting awareness among local and regional investors, help them embed sustainability practices, and address material risk-mapping, environmental initiatives, and social development. The aim is to use ESG reporting as an opportunity to attract foreign direct investment and expose Dubai’s economy to new sectors.
In Bahrain, the Bahrain Bourse introduced the ESG Voluntary Reporting Guideline in June 2020 to encourage ESG disclosures among listed companies and stakeholders. This aligns with Bahrain Economic Vision 2030. The policy has already increased sustainability reporting among listed companies, leading to the Bahrain Bourse being honoured the ‘Most Sustainable Stock Exchange in the GCC Region’ award in 2023.
The Qatar Stock Exchange has published optional ESG guidelines to help listed companies incorporate these standards into their disclosures. The exchange’s CEO has indicated plans to make reporting mandatory in the future. Furthermore, the Qatar Financial Markets Authority has issued Governance Codes to ensure that companies in the Main Market and Venture Market comply with corporate governance requirements related to labour, disability, and gender rights.
Boursa Kuwait, the operator of the Kuwaiti stock exchange, has launched a voluntary ESG Reporting guide for listed companies to encourage corporate sustainability. It has also created a comprehensive guide to encourage market participants to embrace ESG reporting. The guide provides sustainability metrics aligned with UN Sustainable Development Goals (SDGs), Global Reporting Index, and Kuwait’s Vision 2035 to help market participants adopt more sustainable goals.
The ESG reporting framework in Oman is in its preliminary stages. In May 2022, the Omani Capital Markets Authority introduced voluntary ESG reporting guidelines for companies listed on the Muscat Stock Exchange. According to the exchanges’ Executive President Shaikh Abdullah Al Salmi, these guidelines will eventually become mandatory although he did not specify a timeline.
This development follows the government’s announcement in 2021 that it is developing an ESG framework to attract foreign direct investment, which is still in its initial phase. The Central Bank of Oman has also made climate change reporting and sustainability compliance mandatory for banks.
The impact of increased ESG reporting in the Gulf
Greater ESG framework regulations across the GCC have led to a greater integration of ESG practices into company strategies. According to the 2023 PwC Middle East ESG Report, 64 per cent of the respondents reported having an ESG strategy in place, and only 7 per cent said their company had no ESG strategy. The latter was a fall from 16 per cent in 2022.
The recent expansion of Gulf capital markets through increased listings and IPOs, combined with mandatory reporting on various Gulf stock exchanges, will also encourage ESG adoption across the region. For example, in 2022, 18 companies listed on Tadawul and five did so on the DFM. IPO activity has also been accelerating across the region; there were 13 IPOs released in Q2 2023. Gulf strategies to incentivise IPOs then, are key drivers of encouraging Gulf companies to adopt sustainability measures. As Gulf capital markets expand, sustainability in the region is expected to see further improvement.
However, ESG frameworks in the GCC lack standardisation, which creates barriers for sustainable investors. Since there are various approaches and standards to measuring ESG initiatives, it becomes challenging to assess and compare corporate disclosures effectively. Some regional standardisations may be encouraged through the GCC Exchanges Committee establishing unified indicators for voluntary ESG disclosures by local listed entities. These do not replace national disclosure guidelines yet are a significant representation of how committed Gulf countries are towards harmonising sustainability-related regulations.
COP28: an opportunity for strengthened and standardised ESG frameworks
COP28, which takes place in Dubai between November 30 and December 12 this year, may provide an opportunity to encourage greater regional and global standardisation of ESG reporting.
PwC’s 2023 Middle East ESG Report reveals that one-third of the companies surveyed hope that COP28 will lead to cohesive and effective ESG legislation and incentives. Respondents emphasised the need for more ESG-related infrastructure from Gulf governments, such as waste recycling facilities, greening of the electricity grid, and assured purchases for emerging climate-friendly technologies. They also stated the need for green standards and certification of green infrastructure.
Greater focus on these issues by Gulf governments could further encourage companies’ journeys towards environmental sustainability.
Asia House provides a range of services to help organisations navigate complexities in Asia and the Middle East. For more information please contact Charlie Humphreys, Director of Corporate Affairs: charlie.humphreys@asiahouse.co.uk
