BrazilPwC and Strategy& report: ESG is on the rise in the Middle East
ESG has spiralled to the top of the boardroom agenda in the Middle East. As a result, six-in-ten firms have a formal ESG strategy in place, with a similar number anticipating a boost to their brand reputation as a result.
Environmental, social and governance (ESG) centricity is playing an increasingly important part in economic and wider societal debates. As a result of the ever-present discussion around climate change, social inequality, diversity & inclusion and other ESG topics, the expectation that businesses take a stand on such issues are now significant concerns for executives, boards and investors.
If companies are not seen to be putting their money where their mouths are, consumers are increasingly willing to look elsewhere.
In response to this, across the Middle East, 60% of companies now have an ESG strategy in place, a new study by PwC and strategic consultancy subsidiary Strategy& has found. When asked to describe their organisation’s status with regards to ESG strategy, only 16% said they had no formal strategy, while 37% had an informal strategy in place.
Of those with a formal strategy, more than half had embedded it fully across their whole organisations, while the rest were in the process of doing so.
Commenting on the findings, Abdelkhaleq Ahmad, Consulting Partner at PwC Middle East, said, “Across the region, we see national visions drive transformation at an unprecedented pace and scale in ways that are aligned with ESG principles. We believe that ESG can take this transformation to the next level, with increased adoption leading to competitive advantage and long-term sustainable development.”
So what are the firms implementing ESG drives early hoping for, though? According to Ahmad, “the potential is huge,” particularly when relating to the Middle East’s historic role in the energy sector globally and the huge reservoir of young talent. This could present organisations who adapt early with a chance to win market share from competitors – as well as attracting larger portions of young workers, who are more discerning about the ethics of would-be employers.
In line with this, 58% of firms polled said their ESG implementation was expected to enhance their brand reputation within their industry over the next year. Meanwhile, a majority also believed it would position their organisations well to cope with regulatory and systemic pressures.
A 55% chunk of those polled said ESG drives would keep them in compliance with government policy, while looking ahead 52% anticipated improved risk management within their organisation.
From compliance focused to proactive
Many firms may still be missing a trick when it comes to adopting ESG policies, however. When asked which factors were the most important reasons for adopting ESG strategies, the largest portion of 40% said complying with government policies was top of the agenda. The issue with this is that by tying their ESG drives to government policy, their ESG policies may become reactive rather than proactive.
When asked which government policies would have the greatest impact on their ESG strategy, the leading factor was listed by 63% as proving a “measurable impact in the community.” Meanwhile, despite huge importance being placed on human rights issues by consumers and investors, only 51% named addressing human rights concerns through the supply chain as a key factor, and just 49% said mandating more diversity and equal pay was a priority.
With regards to the E in ESG, meanwhile, developing environmental policies is deemed as crucial by many firms. With much of the Middle East’s regional economy still dependent on fossil fuels, a majority of leaders are looking to tackle their emissions profile. Over the coming 12 months, 54% said the environmental areas they planned to focus on were climate change, and waste.
What’s holding companies back?
Addressing ESG plans may be easier said than done, however. Many leaders noted that there were significant barriers standing in the way of their progressing an ESG strategy.
While the impact of Covid-19 remains a popularly cited hurdle for such change, as the pandemic recedes this has fallen to the second most common issue – noted by 36% of respondents.
Now, most prominently, workforce and culture issues were blamed for holding back ESG change. As with any programme of change, failing to communicate and collaborate with employees on changes can see transformations hamstrung from the start – particularly when those changes may be contrary to the social and political norms those employees have been raised alongside. This is not to say such issues cannot be navigated, though.
Yahya Anouti, Partner at Strategy& and the firm’s ESG Leader expanded, “There is a synergistic relationship between ESG and the transformation we are seeing in the region. Integrating ESG principles into a holistic strategy that is embedded across an entity, will ensure that the transformation journey yields trust and delivers sustained outcomes... The region is on its journey to become a global player in the ESG space.”
