Banking & Finance After a slow start, Gulf firms are winning at ESG By Melissa Hancock June 1, 2022 Unsplash Solar energy investments: with governments in the region making net zero commitments, investment strategies and practices are becoming aligned Saudi and Abu Dhabi heavily focused on clean growthA third of GCC banks now publish sustainability reports As the world’s largest producer of hydrocarbons, the Middle East region has been slow to adopt environmental social governance (ESG) practices. But momentum is picking up, according to industry experts. “It’s fair to say that the Middle East is considered somewhat behind the curve on ESG,” said Jessica Robinson, senior advisor for ESG and sustainability at Deloitte Middle East, speaking at a London-based event. “It has been seen as a nice-to-have or a cost burden, but the region is definitely catching up now, especially in the last 6 to 12 months… many regional investors are now focused on how an ESG alignment can support commercial objectives and growth.” Robinson noted how almost every country in the region now has ambitious government infrastructure and development plans – including Saudi Arabia’s Vision 2030 and Abu Dhabi’s Economic Vision 2030 – and most are heavily focused on clean growth, which in turn requires sustainable capital. “It’s significant that we’ve seen a number of governments make net zero commitments in the region. And in turn, this is really driving up regional investor ambition in terms of ensuring that investment strategies and practices are aligned,” said Robinson. Role of banks in sustainability drives She also highlighted how regional financial institutions, such as banks, are playing a critical role in the energy transition, particularly in terms of the products and services offered to clients and investors which is leading to a rise in the issuance and use of proceed and sustainability-linked bonds in the region. “The fact that more green financial instruments are being developed and promoted really reflects that rise in demand as well,” Robinson added. 2020 proved to be pivotal for regional ESG: the value of green bonds issued this year in the Middle East was almost twice that of those placed in 2014, while the Dubai Financial Market launched its first ESG index in April. Similarly, in 2020, Saudi Electricity Company issued its first green bond that was compliant with Sharia (Islamic) law in international markets. Today, GCC banks, along with their global peers, are experiencing growing pressure from a range of stakeholders such as regulators, employees, investors, and customers to increase their ESG activity. On average, one-third or 34 percent of the banks across the GCC now publish sustainability reports, compared with virtually none five years ago, according to a report published by Strategy& Middle East, part of the PwC network, in February this year. However, the study revealed that Gulf banks too often confine ESG efforts to reporting and are yet to take full advantage of the concept of ESG issues, despite countries in the region being engaged in an ambitious energy transition towards sustainability. The ESG webinar was co-hosted by Deloitte and the Principles for Responsible Investment (PRI), a UN-supported international network of investors that works to promote sustainable investment through the implementation of six key principles. Globally today PRI counts 5,000 signatories as part of its network which includes asset owners, investment managers and service providers with over $120 trillion in assets under management (AUM). The Middle East region constitutes a small proportion of these – with just 29 signatories comprising investment managers and service providers with circa $62bn AUM. However, momentum is picking up according to the PRI. “Twenty of our signatories have joined since 2020 which is indicative of a momentum in ESG awareness and implementation,” said Eline Sleurink, head of UK & Ireland and Middle East at PRI. PRI’s Middle East signatories include Emirates NBD Asset Management, Investcorp, Gulf Capital, Saudi Arabia’s SEDCO Capital, FIM Partners, Ajeej Capital and Saudi investment bank Alistithmar Capital.