Listed MENA companies trail global counterparts in ESG performance

21 December 2023 Consultancy-me.com 4 min. read
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The average environmental, social, and governance (ESG) performance for publicly listed companies in the MENA region are behind those of other regions, according to a new benchmark.

Around the world, organizations are looking to sustainability and good governance as part of their future-proofing strategy in an increasingly uncertain reality with risks like war, inflation, and pandemics that can destabilize supply chains and cause economic havoc.

ESG commitments, besides just being good for the environment and stakeholders, have also become a key indicator of the financial performance and sustainability of a company.

Listed MENA companies trail global counterparts in ESG performance

Source: Instinctif Partners, ValueCo

In a new study by Instinctif Partners (a consulting firm) and ValueCo (an ESG metrics platform), the researchers analyzed the ESG performance of companies listed on MENA stock exchanges, with companies assessed from across the region, although four nations (the UAE, Qatar, Turkey, and Saudi Arabia comprising over 80% of the dataset).

MENA’s average ESG ratings fall below the 50% mark, indicating a region grappling with ESG integration,” said Samantha Bartel, MENA CEO at Instinctif Partners.

“With average ratings and governance scores trailing global peers, there exists a significant opportunity for issuers to enhance investor relations and ESG practices,” she added.

MENA comparison

The study however said that both awareness and progress are speeding up. A clear vision for improved ESG adoption in the region is identified, on the back of major transformation agenda’s announced to enhance topics such as environmental topics, sustainability, youth empowerment, closing gender gaps, diversity & inclusion, and corporate governance, among others.

The UAE is leading the way in the MENA region when it comes to ESG, with an average investor score of 39.5%. Just behind the UAE are Turkey and Oman, with scores that also stand out somewhat from the rest of the pack.

Listed MENA companies trail global counterparts in ESG performance

Source: Instinctif Partners, ValueCo

The UAE, though showing relatively low aggregated social performance, has shown itself to be a clear regional leader in sustainability. For example, the research points to the Dubai Financial Market’s ESG stock index, an innovative system used to measure organizations’ commitment to ESG best practices, a move that indicates a wider interest in greater sustainable development in the UAE.

Most countries in the MENA region – particularly the GCC countries – struggle with the difficult transition from an oil-based economy to a more diversified and sustainable economy. Countries like the UAE, Tunisia, Lebanon, and Oman have all pledged zero carbon emissions by 2050. Saudi Arabia has set perhaps even more ambitious goals with their Saudi Vision 2030 program, which aims to radically transform the economy and diversify society.

Among the different sectors in the MENA economies, there have been differing levels of commitment to ESG. Some of the sectors analyzed – like real estate, materials, and utilities – scored below average, at below 20%. Information technology was an outlier, with the highest score of all sectors, scoring 50.3%.

Listed MENA companies trail global counterparts in ESG performance

Source: Instinctif Partners, ValueCo

Despite have very different economies, most of the MENA countries have shown an interest in greater diversification and aspiring towards a low-carbon agenda. As much of the region is sun-baked during most of the year, there is huge potential for solar energy and green hydrogen production fueled by solar power. Despite these promising signs and opportunities, environmental issues like water scarcity and pollution continue to pose huge challenges.

“Qualitative feedback from investors showcased in our analysis indicates a paradigm shift in the importance of ESG,” said Diana Estupinan, Chief Client Officer and ESG Advisor at Instinctif Partners.

“While ESG continues to grow in importance as a trigger for investment decisions by institutional investors, MENA issuers have a valuable window to adapt robust frameworks, and address core concerns raised by investors at a geographic and sector level,” she continued.