The Increased ESG Focus In Middle East

Posted on 22 May 2023

​Organisations in the region are implementing ESG measures while indicating the need for practical assistance so that they can move more quickly, since there is still a shortage of understanding and access to green funding.

This is according to the results of the PwC 2023 research on Middle Eastern environmental, social, and governance (ESG) challenges. The PwC ESG Middle East study was performed for the second time between February 27 and March 14, 2023. The poll respondents were from GCC-based firms, and around two-thirds had sales in excess of $100 million. 

The research emphasises the ongoing work that firms are making to ensuring that their strategy, operations, and procedures are more sustainable, while also indicating the road ahead.

Among the primary highlights of the PwC ESG Middle East study are:

• 64% of those polled had implemented a formal ESG strategy.

• 73% of survey respondents have made or are working towards a carbon-neutral commitment.

• ⅔ respondents want their organization's CEO and Board to devote more attention to ESG problems.

• 46% of organisations self-fund their ESG operations rather than seeking more creative green finance options.

• ⅖ of those polled expect COP28 to result in countries enhancing EDG infrastructure and giving incentives for green growth.

"Heightened awareness of climate risk to business, coupled with new regulation, has driven the embedding of ESG in the strategy of more than six in ten companies in the region, with the focus now increasingly shifting to execution," wrote Dr Yahya Anouti,  PwC Middle East ESG Leader.

Increased emphasis on ESG in the Middle East

As previously stated, a recent PWC poll indicated that 64% of corporations in the area implemented a formal ESG plan last year, with the percentage of organisations lacking an ESG strategy halving.
According to PwC, firms are becoming more transparent about their environmental effect, with 70% reporting on their ESG impact and 59% having their reporting professionally audited or guaranteed. The research from PwC ESG Middle East demonstrates the region's rising emphasis on sustainability and responsibility.

PwC Middle East's ESG head, Yahya Anouti, stated that, in addition to improved desire and progress on ESG in the Middle East, organisations are acquiring a deeper awareness of what is required to continue progress on their ESG agenda.

"Ahead of COP28, businesses expect governments in the region to step up and develop policy frameworks similar to Europe's Green New Deal for the Middle East region." "We are confident that, with the right coordinated response from governments, 2023 will be the region's most environmentally transformative year yet," Anouti added.

According to PwC, enterprises in the area are taking tangible measures towards ESG, with 60% of survey respondents demanding for more time allocation by governments to address ESG-related concerns such as risk management, compliance, and circular economy.

The Middle East is also seeing an increase in the number of chief sustainability officers (CSOs), with more than a quarter of respondents reporting that they now have one, as the responsibility for executing ESG strategy shifts from CEOs to CSOs.

Green financing in the Middle East

According to 41% of organisations polled, the most significant hurdle to pursuing the ESG agenda is a lack of internal sustainability skills and experience.

According to the auditing company, despite the Middle East's active engagement in the green finance sector, there is still a large financing gap, with nearly one-third of respondents identifying money restrictions as a major impediment to ESG implementation.

"ESG transformation necessitates collaboration between businesses and government agencies." Companies must prioritise ESG imperatives to speed progress, while politicians must continue to adopt clear policies and regulations to support their aspirations," said Stephen Anderson, PwC Middle East's Strategy & Markets Leader.

"Green standards, improved circular infrastructure, and tangible incentives for green growth are becoming increasingly important for the region's businesses." Clear laws and regulations, certification procedures, and practical incentives for green growth are the three most wanted ESG-related government measures, which companies hope to see declared at COP28."

The analysis also showed a dearth of green finance understanding and access, with over half of the firms questioned depending on self-funding for ESG operations and only 13% obtaining sustainable finance. Despite the region's significant engagement in raising green funding, this remains the case.

According to PwC, the report identifies four critical areas that must be addressed in order to further drive ESG transformation in the region, including ensuring policy coherence, integrating ESG thinking throughout the organization's operations and strategy, developing sustainability skills, and increasing access to and clarity on green financing.

With companies in the Middle East making progress on their ESG journey, PwC believes that 2023 might be the region's most ecologically revolutionary year yet if governments work together.

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