ESG in the UAE: A Path Towards Sustainable Business Practices
In November 2023, the UAE will host the 28th United Nations Conference of the Parties (COP 28). Never before has there been such a focus on environmental, social, and governance (ESG) issues in the region.
COP 28 promises to bring together governments and business leaders from around the world for an opportunity to discuss how to promote sustainable financial practices across areas of investment, asset management, corporate finance, and more.
Ahead of the event, Sandpaper will explore the UAE’s ESG journey to date.
ESG in the UAE So Far
The UAE’s engagement with sustainability does not begin with COP 28.
The country has already made substantial progress in embracing ESG approaches, particularly through the advancement of new legislation and regulations.
For example, in 2016-21, the UAE Federal Government introduced several initiatives to promote sustainability, including:
- The Abu Dhabi Economic Vision 2030 (2006): This plan sets out the government’s ambition to transition the country from a resource-based economy to become an innovative, diversified, and sustainable global hub.
- The UAE National Framework for Action on Climate Change and Health (2019): This is the UAE’s first comprehensive strategy to tackle climate change, promote sustainable development and improve human health.
- The Corporate Governance Code for Public Joint Stock Companies (2020): This code encourages the adoption of best-practice corporate governance principles and requires ESG reporting for PJSCs.
- The UAE Sustainable Finance Framework (2021): This framework provides clarity and guidance on how investors and companies should responsibly invest in sustainable projects.
These initiatives and regulations highlight the UAE’s commitment to promoting sustainable investments and business practices that will help drive economic growth and social development.
For small to medium sized businesses based in the UAE thinking about COP28 and their own sustainability obligations we have put together a simple guide to help breakdown the steps involved into ESG reporting.
Environmental, Social, and Governance (ESG) has gained immense importance as a framework for assessing the sustainability and ethical impact of businesses. With global concerns like climate change and social inequality, investors, regulators, and stakeholders now focus on ESG factors for informed decision-making. ESG covers various aspects, from carbon emissions and labor practices to board diversity and executive pay. This whitepaper concentrates on the environmental pillar of ESG and outlines steps for UAE businesses to establish a comprehensive ESG program aligned with their objectives. Topics include forming an ESG task force, setting goals, choosing frameworks, data analysis, baseline establishment, and internal controls for sustainability reporting.
What is ESG? ESG assesses an organization’s impact on the environment, society, and governance. It is not just a trend but a crucial concept, and investors increasingly rely on ESG data for decision-making. The environmental pillar of ESG measures a company’s impact on the environment, encompassing carbon emissions, energy consumption, waste management, biodiversity, and more. Sustainable practices enhance an organization’s reputation and are favored by investors.
Why does ESG matter? Prioritizing ESG initiatives offers several benefits for organizations:
- Improved Access to Capital: Companies demonstrating a strong commitment to ESG attract more investments and enhance financial performance.
- Better Regulatory Compliance: ESG initiatives help businesses stay compliant with regulations, avoiding penalties and maintaining a positive reputation with regulators.
- Enhanced Environmental Impact: By adopting sustainable practices, businesses can reduce greenhouse gas emissions and contribute to a better planet.
- Reputation and Customer Attraction: Prioritizing ESG initiatives improves a company’s reputation, attracting more customers who support environmentally responsible businesses.
How to Establish Your ESG Task Force To get started, identify what matters most to your organization, stakeholders, and employees. Establish an ESG task force, including an executive sponsor (e.g., CFO), functional owners (e.g., Facility Owners, Procurement Leads), and reporting/finance functions (e.g., Controller, Director of Reporting). Unify data and information with the help of Chief Information Officer (CIO) and their team.
How to Define Your Goals Define specific ESG goals to guide your efforts. Standards and frameworks such as The International Sustainability Standards Board (ISSB), Global Reporting Initiative (GRI), and Task Force on Climate-Related Financial Disclosures (TCFD) offer guidance on reporting and goal-setting. Focus on data collection, management, and materiality to establish baselines for measuring progress and achieving sustainability objectives.
Understanding Scope 1, 2, & 3 Emissions Greenhouse gas emissions are crucial concerns for businesses. Scope 1 refers to direct emissions, Scope 2 to indirect emissions from purchased electricity, and Scope 3 to indirect emissions from upstream and downstream activities. Collect data and establish baselines to accurately report emissions.
Internal Controls for Sustainability Reporting Strong internal controls ensure accurate data collection and reporting. Develop processes, policies, and procedures for data collection, maintenance, and calculation accuracy. Implement review and approval processes to ensure reliability and build credibility with stakeholders.
In summary not all businesses are required to report on environmental outputs, prioritizing ESG initiatives is vital for future regulatory compliance. Investing in solutions for carbon accounting and sustainability management can offer numerous opportunities and efficiencies for businesses in the UAE. By tracking and reporting on environmental data, organizations can demonstrate their commitment to sustainability and position themselves as responsible and forward-thinking entities.
At Sandpaper, we’re proud of the progress the UAE has made toward becoming a beacon of sustainability in the region. We look forward to seeing how business in the UAE and wider Gulf countries embrace and continue to drive the growth of sustainable practices in the MENA region.
If you’re ready to start reporting on ESG, Sandpaper can help. We’ve worked with countries across the MENA region to develop sustainability reports that meet their unique needs.
Reach out to us today to learn more.