Thomas Paoletti, Managing Partner at Paoletti Law Group, provides expert opinion on ESG in the Middle East – the current situation and what still needs to be done to work towards a more sustainable future.
Human-Caused Climate Changes in the Middle East
The Middle East region is among the world’s most exposed states to human-caused climatic changes. Recent reports have suggested that the Middle East region is warming twice as fast as the global average and many fear that the region may face a temperature rise to 5 degrees by the end of the century in the absence of some action to reverse the trend. The region is poised to suffer from “soaring heat waves, declining precipitation, extended draughts, intense sandstorms and floods, and rising sea levels“.
Nearly 32 countries in the Middle East and Central Asia in pursuance of the Paris Agreement have pledged to contain annual greenhouse gas emissions in 2030 by 13 percent to 21 percent. The governments across the region are keen on reducing their carbon footprint and have made several efforts to achieve their targets. ESG reporting is one such effort at curtailing the extremes of climate change.
UAE and Saudi Arabia’s Efforts at Sustainability
UAE through its Vision 2031 aims to establish itself as a green economy focusing on sustainable development and infrastructure. The Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange both are required to publish annual sustainability reports that align with the GRI standards. Further, these exchanges have also provided guidance and training on ESG reporting to several of the listed entities. The DFM has in addition also prepared an ESG stock index specifically for UAE companies that keeps track of the sustainable practices of these businesses and evaluates their performance. The Securities and Commodities Authority (SCA) has also supported ESG reporting through 32 ESG metrics and indicators that companies are encouraged to disclose.
Under Saudi Arabia’s Vision 2030, the country strives to achieve a diverse and sustainable economy. ESG considerations are impacting investment decisions in the region and hence the Saudi Exchange through its published ESG guidance encourages listed companies to identify ESG factors impacting their businesses to take actions to improve their ESG scores.
Both Saudi Arabia and the United Arab Emirates have set sights on becoming energy transition leaders as they look to carbon capture, utilization, and storage (CCUS), and low-emissions fuels such as hydrogen, ammonia, and methanol, as well as green steel, cement, and aluminium. Both the economies are focusing on emissions-avoiding technologies that reduce emissions intensity, including measures that reduce energy consumption; renewables that replace the primary source of energy; and carbon capture that reduces emissions from point sources.
How Companies Can Overcome the ESG Reporting Challenges?
The reporting challenges posed by different ESG regulations of multiple countries can be overcome through standardization of the reporting framework across the region. Further, automation in reporting measures through a reliable reporting platform ensures accuracy and completeness in ESG reports. Businesses must also rely on various ESG reporting software to ensure efficiency in data collection and reporting. Most importantly businesses must seek regular feedback and review to identify areas for improvement.
The Road Ahead for ESG Reporting
The UAE has committed to various goals like Net Zero by 2050, Vision 2031 and other such goals through COP 28 like the Oil and Gas Decarbonization Charter, and Global Cooling Pledge. These goals are committed to decreasing the rising temperatures and promoting renewable energy. The rising concern for climate change will result in increasing regulations for private sectors resulting in stringent ESG compliances that will help the national governments of UAE and Saudi Arabia to fulfil their climate commitments. Businesses are bound to face increasing challenges while complying with these regulations and hence it is important to stay a step ahead and embrace these changes.
