ESG (environmental, social, and governance) is like a seed in the ground, growing roots and branches, making it increasingly difficult to ignore or uproot. But the real question is whether it will truly reach its full potential. The number of voices demanding more transparency on ESG issues has skyrocketed in recent years.
As the global economy faces challenges such as climate change, social inequality and corporate misconduct, stakeholders demand more clarity and accountability from companies about their ESG practices. PwC recently surveyed investors and found that 79 percent of respondents felt ESG reporting was crucial when making investment decisions. With a projected 84 percent increase to $33.9 trillion in 2026, ESG-focused institutional investment will account for 21.5 percent of all assets managed, according to PwC.
ESG considerations have emerged as a top priority in the policy and strategic frameworks of businesses operating in the Middle East. The UAE has positioned itself as a trailblazer in ESG reporting. It has spearheaded initiatives, such as the Dubai Carbon Abatement Strategy and the Dubai Clean Energy Strategy, to combat climate change.
These goals and ambitions include targets for reducing emissions, increasing renewable energy generation, and promoting sustainable practices. Businesses aspiring to demonstrate commitment to climate change and the UAE’s net-zero emissions target by 2050 must comprehensively evaluate their operations, encompassing possible avenues for growth and potential risks.
Integrating ESG principles into business strategy entails a commitment to the three fundamental pillars of environmental sustainability, social responsibility, and ethical corporate governance. Consequently, it mandates a comprehensive approach to reducing waste, CO2 emissions, and pollution and promoting diversity and inclusivity throughout the organisation’s management hierarchy.
With the upcoming Cop28 event, all eyes will be on the UAE, so regional businesses must create robust ESG reporting. Implementing comprehensive ESG disclosure can help position businesses as leaders in sustainability, ensuring their long-term viability and relevance. Therefore, regional companies are encouraged to prioritise the development of ESG reporting to align themselves with global sustainability objectives and to demonstrate their commitment to a sustainable future.
Demand for ESG products exceeds supply
Even though there has been a dramatic growth in interest in ESG-centric products, 30 percent of investors report having difficulty locating suitable ESG investment alternatives. Investors are increasingly looking for products that generate a return and have a positive environmental, social, and governance (ESG) impact. As more investors become interested in ESG products, demand is outstripping supply.
The legal obligation to disclose information for publicly listed companies
Investors in public firms increasingly place a premium on ESG factors. As a result, to attract and retain investors, publicly held companies must maintain their ESG reports and strategy and provide accurate information publicly. The Securities and Commodities Authority (SCA) has implemented specific ESG disclosure requirements that public joint stock companies listed in the UAE must comply with.
Don’t wait for the mandate: Stay ahead of future regulatory guidelines
ESG will continue to thrive in the future. Companies that fail to monitor and track the metrics required for future compliance with ESG standards risk being left behind when these standards become mainstream. To remain competitive, businesses must prioritise ESG metrics and integrate them into their operations.
Leading by example: Becoming the change you want to see
Today’s businesses are often considerably more outspoken about social concerns than their predecessors were. Some businesses are even altering their methods to reflect the change they advocate. There has been a widespread shift toward more eco-friendly packaging among major manufacturers of consumer products.
Not only that, but many large companies donate millions of dollars annually to various charity causes. This shift in the corporate landscape has been driven by several factors, including an increasing awareness among consumers about social and environmental issues and a desire to make a difference in the world.
Making your business sustainable and assessing ROI on reduced emissions
Your business’s worth will increase due to the credibility you get through ESG reporting. Company values that emphasise fostering a low-carbon future will win the support of stakeholders and the general public. Just cutting down on carbon output isn’t enough. The return on investment (ROI) of energy efficiency upgrades must be shown with reliable statistics. ESG reporting is useful for calculating ROI and making a public commitment to cutting carbon emissions, which is incredibly valuable for business and promotes more justice.
The final verdict
Like an iceberg, most of ESG’s impact is hidden below the surface; it has the power to shape the entire landscape of an organisation. With the world’s attention on the Middle East, as Egypt and the UAE hold COP27 and COP28, corporations can progress toward ESG disclosure. Companies in the UAE and Saudi Arabia can gain a competitive advantage, increase their attractiveness to investors, and help the government achieve its enormous sustainable development and social responsibility objectives by focusing on ESG factors.