ESG is at a tipping point. The momentum behind, and growing commitment to a more sustainable way of living is undeniable. If the past 12 months have proved anything, it is this: society is demanding a better approach to business, one that serves workers, customers, society, and the environment, not just shareholders.
And as the UAE celebrates its milestone Golden Jubilee this year and the country’s leadership maps out what success looks like for the next 50 years, now also feels like a good time for companies to embrace a new approach to business that goes beyond the board room and corporate balance sheet.
For many businesses, the pandemic has been a wake-up call. When I talk to private and public sector leaders, I see a certain adjustment in their focus: they are rethinking their organisation’s business purpose, its commitment to the planet, and their people.
It is no surprise then that climate, a big part of what represents the “E” in ESG, is front and centre of so many conversations right now. The urgency of action required has been amplified by a global pandemic that has forced people and businesses to reconsider how they can make a difference to society.
This is backed up by our own experience. Most leaders (71 percent) surveyed in KPMG’s 2020 Global CEO Outlook said they want to lock in climate change gains made because of the pandemic. This is a major tick in the box for the sustainability agenda. If businesses are in any doubt as to where their strategic planning should focus, then the United Nations Sustainable Development Goals (SDGs) and United Nations Paris Agreement on climate change provide a clear road map to a more sustainable future.
In the UAE, our research has recorded a significant uptick in sustainability reporting by businesses. UAE business leaders are developing a deeper understanding of sustainability and are increasingly integrating climate-related risks into corporate strategies.
At the same time, more businesses are starting to pay close attention to the relationships they have with their workforce and their connection to the communities where they operate. The pandemic has placed greater emphasis on the “S” in ESG. While this trend isn’t new, it certainly isn’t going away.
The KPMG 2020 CEO Outlook report revealed the pandemic saw close to two-thirds (63 percent) of CEOs around the world shifting focus to the social component (“S”) of their environmental, social and governance (ESG) programme. Business leaders are investing more time and resource in rebalancing both personal and organisational purpose. The ‘social’ dimensions of ESG have seen a heightened concern over issues such as employee well-being and safety.
While it has taken a pandemic to drive home the point that people’s wellbeing is critical to business continuity, the shared experience has also shaped more empathetic leaders, with stronger emotional connections to their organisation’s purpose and workforce. Health and safety have always been crucial for operations across many sectors; Covid-19 is bringing it into sharper focus and making it a priority for everyone.
Beyond the workplace, companies need to also consider their role in supporting a more inclusive and diverse society. The Special Olympics World Games held in Abu Dhabi in 2019 was a great example of how the corporate world, KPMG included, can contribute to the greater good, whether through financial sponsorship, or in many cases, actual hands on, volunteer work on the ground.
An element that is often overlooked in ESG adoption is governance. Done well, good governance allows companies and organisations to operate in a fair and ethical way. This is important given the scrutiny of corporate actions has never been stronger. Companies that rank low in terms of good corporate governance expose themselves to potential mismanagement, putting their businesses at risk.
It is crucial that businesses in the UAE fully embrace ‘good governance’ as risks and opportunities attached to it are only going to increase as social, financial, and cultural attitudes mature. The work of DIFC-based Hawkamah, the institute for corporate governance, to help develop globally recognised corporate governance frameworks across the region gives me confidence that we are moving in the right direction.
But still, more progress is needed.
It is clear that ESG is becoming increasingly important among investors and broader society, but companies continue to move at different speeds in terms of actual ESG adoption. To accelerate the ESG agenda in the UAE and beyond, organisations need to develop a culture that supports their ESG efforts and aligns with their vision.
The onus too is on business leaders to clearly articulate the value that ESG brings to their companies, this makes effective communication with both internal and external stakeholders crucial. Only by integrating ESG into business and everyday life can organisations deliver consistent, long-term value to all parties.
While the UAE government continues to support and propel the country’s economy forward, the companies that emerge stronger in 2021 will be those who are committed to reorienting business towards the greater good.
ESG programmes that fall short of the mark risk eroding public trust in the process. And the organisations that fail to adapt to this new landscape, run the risk of being left behind altogether. The ESG opportunity is one that can no longer be ignored.
Nader Haffar is Chairman and CEO, KPMG Lower Gulf (the UAE and Oman)