By Charlene Rahall
In today’s business world, demands for corporate disclosures are rising. MENA companies are thus advised to invest in sustainability reporting.
A sustainability report conveys to investors and stakeholders environmental, social, and governance (ESG) insights. Disclosure of a company’s ESG impact can open doors to significant opportunities.
Sustainability reporting allows investors to identify firms with sustainable investment opportunities. It also provides investors with relevant information on long-term risks and value.
Through sustainability reporting, MENA companies can explain how they mitigate ESG-related risks. They can also make clear how they ensure sustainable financial returns.
In a global financial system that increasingly rewards sustainability, disclosures promise capital. In MENA countries, companies with sustainability reports will stand out to foreign investors.
Yet, few MENA companies have a holistic sustainability strategy in place. Several businesses are only focused on social and community engagement. Their approach to sustainability prioritises education, the environment, health, and youth empowerment. These companies tend to integrate ESG into their corporate social responsibility (CSR) schemes.
In the Gulf, the UAE is taking the lead in corporate sustainability reporting. In December 2020, KPMG surveyed the sustainability reporting of 100 UAE companies. The results show that 51% of companies reported on sustainability, compared to 44% in 2017. Yet, the Emirate remained below the global average of 77%.
The KPMG report also showed that 49% of companies aligned their activities with the UN’s sustainable development goals (SDGs). This is a considerable increase from only 36% in 2017. Outside the Gulf, both reporting and alignment with the SDGs remain low.
The Business Case for Sustainability Reporting
Investing in sustainability reporting and enhancing disclosures have many benefits. These include:
- Improving sustainability performance. It is important to set targets for future performance. Annual reporting allows your company to assess and improve its ESG impact. It can also save costs and boost company culture. In MENA, awareness begins to shift, with younger generations embracing sustainability. Thus, improved sustainability performance is likely to be awarded and recognised.
- Gaining credibility and enhancing stakeholder trust. Sustainability reporting provides transparency. This, in turn, builds up stakeholders’ trust and improves your brand reputation. Both factors ease long-term value creation.
- Boosting investor confidence and engagement. Evidence suggests that improved sustainability performance makes your company attractive to investors.
- Getting ahead of the curve. Producing annual sustainability reporting allows your company to keep up with new standards. In the MENA region, first sustainability disclosures might give companies a competitive edge.
Keeping up with Standards and Frameworks
Of those companies that report on sustainability in the region, most use the Global Reporting Initiative (GRI) as a framework. This is particularly true for the UAE. Disclosure guidelines by the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM) align with GRI and the SDGs.
The GRI framework adopts a multi-stakeholder approach. It has evolved since 1997, and is a commonly used ESG framework globally.
GRI Standards consist of Universal Standards, Sector Standards, and Topic Standards. They cover a broad range of sustainable development topics. These include environmental compliance, anti-corruption, and biodiversity. They also consider diversity and equal occupation, among others.
MENA companies may also choose to adopt the World Economic Forum (WEF) framework. Developed in 2020, it incorporates other frameworks such as CDP, CDSB, GRI, IIRC, SASB. As such, it brings together and synthesizes current best practice in the field.
The WEF framework reports on “Stakeholder Capitalism” metrics. These metrics aim to support the benchmarking on sustainability matters. They also try to improve decision-making and enhance transparency.
Over 60 global companies have committed to adopting the WEF’s new reporting framework. Two out of the 60 are from MENA. Besides, over 30 MENA community members have endorsed the Principles of Stakeholder Capitalism. They include MENA government officials and company executives.
Reporting your Impact
The ESG impact of MENA investments and operations needs to be assessed, conveyed and improved. Best practice recommendations when producing a sustainability report include:
- Benchmarking your sustainability reporting against local and international standards and frameworks.
- Conducting materiality assessments and stakeholder engagement workshops.
- Aligning climate risk disclosure with the Task Force on Climate-related Financial Disclosures recommendations.
- Including case studies that showcase the impact of your company’s operation.
- Getting your sustainability report assured by an independent third-party
Needless to say, these are only five of many points to consider. The language and visual presentation of your report are also important. Your report must detail the impact of your economic, environmental, and social activities.
Demand for ESG-linked investments is growing. So is the need to better understand and report on ESG-issues. Regional and international regulations will require further disclosures and drive more reporting. Yet, company awareness and motivation to promote sustainability must also grow intrinsically.
MENA companies need to play an active role in developing a strong ESG culture in the region. This is also true for financial institutions, such as family offices and sovereign wealth funds.
They can do so in many ways. For instance, they could demand more disclosures themselves from regional firms they invest in. MENA companies need to move from traditional CSR reporting to sustainability reporting. This way, they can ensure that their disclosures encompass all aspects of ESG.