Gulf’s ESG uptake hindered by lack of expertise

Pexels/Pavel Danilyuk

• 64% have ESG strategy
• Green bonds worth $28.5bn
• ‘The skillsets are lacking’

The Gulf has seen a rise in green bonds and funds, but awareness of environmental, social and corporate governance (ESG) reporting and the infrastructure to carry it out is lagging the rest of the world, a leading industry expert says.

A survey from the consultancy PwC Middle East revealed that 64 percent of respondents in the Gulf region have adopted a formal ESG strategy.

This growth has been evident in the fact that total GCC green and sustainable bond and sukuk issuances rose almost 50-fold to $28.5 billion in 2022, from just $605 million in 2021.

Sukuk are sharia compliant bonds that were developed as an alternative to conventional bonds, which are not considered permissible by many Muslims, as they pay interest, and also may finance businesses involved in activities not allowed under sharia law.

• Dubai businesses stepped up sustainability ahead of Cop28
• New certification to swell sharia-compliant funds
• Space data joins the battle against greenwashing

“There is a growing pressure from investors and banks to factor ESG considerations into capital allocation and decision making,” Fazil Abdul Rahiman, VP sustainability and climate change at Abu Dhabi National Energy Company, was quoted as saying in the PwC survey report.

PwC’s research also found that addressing the talent gap to push forward the ESG agenda was also “hindering the progress” of implementation in the Gulf.

Sandeep Chandna is chief sustainability officer at Tech Mahindra, an India-based IT services and consulting company, which has an office in Dubai.

He said because ESG is a relatively new phenomenon, experience in the sector is often missing: “You see every CV saying they are ESG experts, but the skillsets are lacking.”

Framework and guidance

The Abu Dhabi Global Market free zone has recently implemented a sustainable finance regulatory framework for registered funds, discretionary managed portfolios, bonds and sukuks.

The ESG Disclosure Guidance from the Abu Dhabi Exchange – for voluntary disclosure – has also been published.

It lists 31 ESG indicators that are considered essential to a company’s reporting and align with the recommendations of the Sustainable Stock Exchanges Initiative, a United Nations organisation designed to encourage sustainable investment, and the World Federation of Exchanges, the global industry group for exchanges and clearing houses.

Robert Mitchley, senior associate at the legal firm BSA Ahmad Bin Hezeem & Associates, said: “It is evident that the ESG landscape and reporting requirements are still in the developing stage. Many advisers are also still gaining the skills and developing the experience and expertise in parallel with the development of the regulations and reporting standards.”

Gihan Hyde, CEO and founder of Communique, a team of ESG and corporate communication specialists, said the region’s finance sector needs to drive this change: “There basically isn’t the same awareness nor the infrastructure to help them to live and breathe [ESG] in the Middle East yet 

“But the hope is coming from the finance sector and this is where the power lies. Money moves mountains.”

Global ESG-labelled funds hold approximately $7 trillion in assets, an analysis of 14,500 funds by Bloomberg found.

“The money is there, it’s just a willingness that needs to now catch up,” Hyde said.

This week it was announced that the Abu Dhabi Islamic Bank has closed a AED1 billion sustainable finance facility for Aldar Properties to help the real estate giant further its green credentials.

The funding takes Aldar’s total ESG financing facilities to AED4.8 billion.

It will be spent on sustainable projects including green buildings, upgrades to properties to improve energy efficiency, sustainable water management, pollution control measures, and renewable energy sources, according to a statement.

The hosting of Cop28 in Dubai may be the catalyst for raising awareness and skill sets in the future.

A survey of Dubai companies conducted by AGBI and the British Business Group found that more than a quarter of the group’s 72 members said they had ramped up their sustainability initiatives in the run-up to Cop28, which concluded on December 13. 

Seven out of 10 survey respondents said they believed the global climate summit would have a positive long-term effect on ESG initiatives in the UAE.