From SDGs to ESG: Why Sustainability Is Core to the Gulf’s Future

The Gulf region finds itself at a time of incredible economic opportunity and challenge. Two years of business disruption caused by the pandemic and compounded by climate change have heightened awareness of environmental and social governance (ESG) issues. No doubt, these rapid shifts can be daunting. They can also be an enormous opportunity for Gulf-based governments and organizations to use ESG to measure and manage transformation while accelerating progress towards ambitious economic, institutional and societal goals. But to ensure that strategy translates into action, stakeholders must take critical steps to develop buy-in at all organizational levels and integrate ESG into business practices.

A recent report by APCO Worldwide and GCC Board of Directors finds that while interest in ESG is burgeoning regionally, many GCC-based companies are still at the “start-up” phase of their ESG journey, leaving them susceptible to the impacts of risk. With an overabundance of frameworks, combined with the fast-paced evolution of regulatory policies, organizations often struggle to analyze and act upon their data. While playbooks may be in place, they are hard to decipher, let alone implement. To leverage ESG strategy to meet this moment, Gulf-based companies and governments must adopt the following shifts:

1. Recognize that ESG accelerates a company’s business priorities while strengthening stakeholder engagement.Having robust ESG teams and processes with committed leadership from boards and senior management is critical to developing a strong approach, but Gulf-based companies have been slow to hire accordingly. Only 26.6% of organisations surveyed have a specialised ESG team that sits under one business unit. GCC companies have an opportunity to address this gap by identifying stakeholder demands and ESG business drivers. Young employees are entering the workforce, curious about their companies’ goals and progress in areas such as diversity and inclusion, and corporate responsibility. Because of this, corporate commitments that consider ESG factors make companies competitive for top talent, while also building loyalty and growing the customer base. Here, GCC companies have embraced this perspective: data finds that 75% of ESG processes and operations of respondents’ organisations are supported by corporate social responsibility while 51.3% are supported by performance management and 40% by HR practices. Organizations that perform the best continue to cultivate the advantages of these programs through the inclusion of ESG-related knowledge and learning in staffing initiatives.As ESG priorities are advanced, Gulf-based organizations will see enhanced corporate values, culture and collaboration – making it clear that the public and private sectors stand to benefit from a deepening commitment to sustainability to ensure that company’s reach their goals.

2. As a cornerstone of decision-making, ESG optimises the advantages of long-term thinking.When considering factors that may impact company strategy, it is essential to identify, assess and prioritize environmental and social risks. In the GCC region, 51.3% of organisations primarily view ESG as a value creation strategy while 46.3% see it as a risk mitigation measure. Effective companies link ESG strategy to managing long-term performance, enabling them to protect their business model by acting on emergent risks that threaten profitability.These advantages have already been acknowledged by several Gulf states. In 2020, all public joint stock companies listed on the Abu Dhabi Securities Exchange (ADX) or the Dubai Financial Market (DFM) in the UAE (Listed PJSCs) were required to publish a sustainability report reflecting how long-term company strategy impacts environment, society, the economy and governance. Risk-related disclosures enable a management process that is aligned with corporate objectives, which is critical in addressing the short and long-term consequences that climate change poses to operations. Organizations that report transparently not only future-proof their businesses against climate-risks, but also reflect market-readiness and organisational confidence. 

3. We need to continue developing innovative solutions – and this requires collaboration between government and private sector stakeholders.With the number of frameworks in existence continuing to grow, organizations in the GCC region struggle to identify metrics to focus and report on. Although 70% of surveyed organizations are aligned with common reporting standards and auditing their results, only 9% of respondents said that they use a framework to determine what information is critical to measure and manage ESG issues.Governments can help Gulf businesses streamline their transition to sustainable practices as there is major demand for standardized methods of reporting and frameworks to align with government regulations and policies. Aligning of regulatory bodies and companies can ensure that frameworks become accessible, motivating and empowering businesses to implement a strong ESG strategy and go beyond compliance.

   Take, for example, the UAE’s adoption of Vision 2030 in 2015, which defined a roadmap for national sustainable development. The UAE also presented its first Voluntary National Review in 2018, underscoring the country’s SDG implementation strategy, as well as methods of data collection utilized to develop clearer policies and regulations. The UAE government defined and strengthened the scope of ESG adoption and ambition within the region, effectively creating the pathway to collaboration between them and the private sector. By developing innovative solutions like this, both government and private sector stakeholders can push beyond compliance, and actively accelerate opportunities for the GCC to successfully confront unprecedented shocks in the short and long-term.