ESG Analysis of the Middle East Region
The Middle East has historically grappled with accessibility in carbon markets as the region stands at the midpoint of the Decade of Action to realize Sustainable Development Goals (SDGs) by 2030. Investors, regulators and issuers rely on environmental, social and governance (ESG) goals to connect the opportunities and hopes of the Middle East to the World. Global private markets are counting on businesses that merely don’t deliver returns but also add value to ESG practices, products and services.
From being on the fringe to becoming the sine qua non in investment decisions, ESG has come a long way in the Middle East. Governments are investing in regulations and frameworks to boost ESG practices amidst policymakers emphasizing ESG reporting. Meanwhile, it is easier said than done for companies to be financially sustainable on the heels of conflicts, polarization and supply chain disruptions in the region and the world.
At this pivotal juncture, ESG developments in the Middle East have been in line with the global sustainability trends:
- In November 2024, Saudi Arabia rolled out the carbon credit exchange during the UN Climate Exchange Conference in Baku. The world’s largest oil exporter is bullish the move will underscore decarbonization efforts and the voluntary carbon market.
- In November 2023, Bahrain revealed its National Energy Strategy to achieve the Net Zero 2060 target. The country aims to increase the number of trees by two-fold by 2035 and it has started the Botanical Atlas project and Green City initiatives to reach zero neutrality.
- In 2023, the Muscat Stock Exchange (MSX) introduced voluntary ESG disclosure guidelines. Oman expects mandatory sustainable reporting to get underway in 2025.
- In June 2023, the Abu Dhabi Global Market (“ADGM”) ratified the ESG Disclosure Framework to underpin ESG transparency and disclosure of applicable information and expedite the UAE’s green economy agenda.
- An Invest Qatar’s ESG Report asserts that at least USD 75 billion will be made available by 2030 for sustainable investments. The Arab country expects to rev up solar energy capacity to 2-4 gigawatts by 2030. It has set a target to cut the carbon intensity of its liquefied natural gas facilities by 25% by 2030.
Navigating ESG Goals across the Middle East
The process of diversifying regional economies away from fossil fuel-based industries has enabled Arab countries to unlock untapped potential through ESG integration. The need for risk management gives impetus to ESG integration, which peruses risks and opportunities revealed by the assessment of ESG issues. It enables investors, companies and governments to recognize the significance of sustainability to adopt a holistic approach towards sustainable business practices and reduce potential business risks.
Countries such as UAE and Oman have set audacious net-zero targets by 2050, fostering investments in renewable and solar energy. For instance, in January 2024, Oman took a landmark decision to reveal a sustainable finance framework to reduce its dependence on fossil fuels and woo ESG investors. The framework exhorts the country’s plans to issue financial instruments, such as “green, social and sustainability bonds that adhere with Islamic law. The proceeds will be used to refinance and fund renewable energy projects.
Oman’s tectonic shift will globalize the green finance system by reshaping the financing options in the Middle East. Meanwhile, in November 2024, the UAE announced a bullish plan to inject USD 54 billion by 2030 and march towards its 2050 climate goals. The UAE, one of the world’s largest oil producers, has taken a giant leap in clean energy investments. It increased its renewable energy capacity by 70% in 2023, while the 1.8 GW Phase VI of the Mohammed bin Rashid Al Maktoum Solar Park Project has taken the Middle Eastern country closer to its energy goals. Furthermore, the UAE has fostered board diversity: the Abu Dhabi Securities Exchange requires companies to have a minimum of one woman on their board.
Since the launch of Vision 2030 in April 2016, Saudi Arabia has been a notch above to introduce bullish measures to propel environmental, social and governance metrics. In August 2024, Saudi Arabia’s Council of Ministers gave a nod to an updated investment regime to propel investors’ rights, ensuring fair treatment, the rule of law and the freedom to fund transfer immediately. The new reforms—likely to come into effect in 2025—are expected to eradicate foreign investor licensing, thereby streamlining investment. The largest economy in the Arab region has created special economic zones with lower tax rates, special visa issuance for investors and rolled out new laws pertaining to bankruptcy and civil transactions.
Unlocking ESG Potentials in the Oil and Gas Industry
The Middle East continues to rule the roost in the oil and gas industry—it houses the world’s top oil producers—Saudi Arabia, the UAE, Iraq, Iran and Kuwait. Leaders strive to capitalize on sustainable technologies and renewable energy projects; however, the oil and gas industry is particularly infamous for generating scope 1 and 2 emissions.
Optimistically, oil and gas producers are addressing emission issues through their buoyant and cost-effective measures, minimizing the negative impact of fossil fuels on the environment, reducing occupational hazards, fostering human rights, and investing in renewable energy sources. Saudi Arabia has laid down bullish goals to reach net-zero carbon emissions by 2060 and injected billions of dollars into sustainable projects.
To illustrate, Saudi Arabia is aiming for 130 GW of renewable capacity by 2030. The kingdom has also underscored its mission to bolster financial inclusion and economic diversification—an indispensable part of Saudi Arabia’s Vision 2030. In 2023, the Saudi Exchange encouraged listed companies to identify, prioritize and analyze the most relevant ESG factors. The Kingdom’s stock exchange has published ESG guidance, including tax transparency, labor management, supply chain labor standards and controversial sourcing.
Why are Renewable Projects and Technological Advancements a Boon for a Better Future?
The Middle East has augmented investments in hydrogen production, geothermal energy, onshore wind, solar power, carbon capture utilization and storage (CCUS) and battery and energy storage systems. In September 2024, the Energy Industries Council (EIC) published a report stating that renewable energy projects in the Middle East are poised to reach USD 75.63 billion by 2030. Meanwhile, the IEA claims that merely 20% of the earmarked energy investments would be channeled to renewables. The EIC report further notes that wind installation added 306 MW in the UAE and Israel.
The oil and gas industry also grappled with the perennial problem of market volatility and complex regulatory compliances. For instance, global gas prices dipped to record lows in Q1 2024. In this vein, Arab countries can explore data analytics, AI and automation to streamline compliance processes and avert the risk of regulatory transgressions.
Investing in Sustainable Financial Services
The financial services sector stands at a pivotal point in overcoming sustainability challenges through digital financial inclusion, sustainable finance and carbon footprint reduction. The trend comes against the backdrop of several companies resorting to greenwashing and short-term profit motives that have dented sustainable finance. In essence, the issuance of green bonds, sustainable bonds, and sukuk issuance (bond-like investments in Islamic finance) have witnessed an uptick across the GCC countries. As of June 2024, the Public Investment Fund (PIF) of Saudi Arabia earmarked USD 5.2 billion (out of USD 8.5 billion) raised through green bonds for projects. Funds have been allocated to infuse funds into renewable energy, green buildings, and sustainable water management projects, propelling the UN Sustainable Development Goals.
All ESG Roads Lead to the Middle East
As the world reels under the pressure of climate catastrophe, the Middle East has a monumental task to avert the worst effects of climate change. State-of-the-art technologies could be an invaluable ally to expedite sustainability. The Google and BCG Accelerating Climate Action with AI report (introduced at COP28) inferred that AI could help reduce up to 10% of GHG emissions by 2030. Predominantly, Saudi Arabia and the UAE are placed second and third in internet penetration rates, globally. Besides, robust internet access can help female entrepreneurs join the workforce easily and negate the high cost of renting, a significant enabler of diversity, equity and inclusion (DEI).
Meanwhile, the caveat is that collating and curating ESG data is a bottleneck for many organizations on the back of a lack of a defined ESG strategy to identify and categorize ESG data. Plugging this gap must be the priority as Arab countries exhibit promising sustainability goals and greater transparency.
How NeoImpact can help with ESG Strategies in the Middle East
- Our data management tool handholds companies, including first-time reporting companies with ESG awareness, comprehending ESG metrics, collating the right data, normalizing information as per defined standards, and aligning with required frameworks.
- The above toll also assists companies in accurate and comprehensive recording and reporting to broader stakeholders.
- While they record and monitor their own performance, our tool also enables them to benchmark and track ESG performance across regional and global peers. This feature does not only help them benchmarking against mainstream ESG fundamental metrics, such as emissions, energy, human capital, etc. it includes diverse alternative data metrics, such as patents, green investment, regulations, job trends, controversies, among others.
Contact Us to explore NeoImpact’s suite of ESG Consultation Services and ESG Data Analytics Platform for Private Markets.
