Sustainability In MENA: Shaking Up Reputations

The Middle East is awash in government, bank and corporate initiatives.

Three Middle Eastern countries have recently pledged to reach net-zero carbon emissions: the United Arab Emirates (UAE) by 2050, and both Saudi Arabia and Bahrain by 2060. “That’s important, because a lot of financial institutions must align with the government,” says Jessica Robinson, founder and managing director of Dubai-based sustainable-finance advisory Moxie Future.

Companies are beginning to integrate environmental, social and governance (ESG) criteria into their business plans. Not so long ago, when questioned about their ESG strategies, executives would “say that they didn’t know what we were talking about,” says Tarek Shahin, chief investment officer at Misr Capital, the Cairo-based asset management arm of Banque Misr. “Not that they rejected it, they just didn’t know. Now they know. They either make their case or say that they are on the way to doing better. You see that across the board.”

Last October, representatives of more than 25 countries from four continents gathered in Riyadh for the official launch of the Middle East Green Initiative (MGI), a Saudi Arabia-backed scheme that, among other things, aims to plant 50 billion trees in the Middle East and restore an area equivalent to 200 million hectares (just over 772,000 square miles) of degraded land, an area slightly larger than Mexico.

At the MGI gathering, regional leaders all said the right things. Mohammed bin Salman bin Abdulaziz Al Saud, crown prince of Saudi Arabia, delivered opening and closing remarks. “We are ushering in a new green era in the region,” he said. “The effects of climate change are not limited to the natural environment only, but also to the economy and security of our nations.” He further stated, “Climate change is an economic opportunity for our citizens and the private sector [that] will create quality jobs and encourage innovation in the region.”

Yet, at COP 26 in Glasgow, which opened just a week later, Ireland`s former President Mary Robinson joined a chorus of global critics, emotionally accusing Saudi delegates of “playing dirty games” to water down the agreement by removing language regarding human rights issues and the phasing out of fossil fuels. Saudi representatives denied those charges.

The clash calls attention to the challenges of transforming petroleum-dependent economies. But many experts believe in the shift. “In both Saudi Arabia and the UAE, it is the official policy to switch to a new export commodity,” says Rinaldo Brutoco, CEO and founder of H2 Clipper, an aerospace firm with expertise in renewable energy. “They understand.”

In November, Egypt will host the next annual climate summit, COP 27.

A Dearth Of Standards

Measuring progress on sustainability is hampered by the lack of a clear, universal definition. As a result, some people fall back on ESG, customarily used by companies, analysts and investors. Others prefer to focus on climate change. Still others point to the UN’s Sustainable Development Goals (SDGs) that aim “to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity.”

However one measures it, there seems to be a consensus among businesspeople that sustainable practices lead to greater profits. “There is hard evidence from the market that companies that care about sustainability—governance, the environment, their standing in the community, and labor—tend to do better financially,” says Misr’s Shahin. “Especially when it comes to industrial companies that aren`t careful about the environment, because of the risk of litigation.”

Given that backdrop, it shouldn’t be surprising to find plenty of newly launched or accelerated high-profile sustainability initiatives by companies and financial institutions.

The National Bank of Kuwait (NBK) recently appointed two new independent board members, “one with an extensive background in ESG,” says Hisham Abouali, sustainability manager at the bank. “That will ensure that the board focuses on ESG.”

The NBK board will soon feature its very own sustainability committee. In parallel, the bank is writing a sustainability charter.

At the end of June, Commercial International Bank (CIB) issued Egypt’s first corporate green bond, with the entire total of $100 million snapped up by the International Finance Corporation, the private sector development arm of the World Bank. The proceeds will fund a portfolio of green loans.

They “will also be aligned with several SDGs that are relevant to CIB’s strategy, namely: SDG 6, Clean Water and Sanitation; SDG 7, Affordable and Clean Energy; SDG 9, Industry, Innovation, and Infrastructure; SDG 11, Sustainable Cities and Communities and SDG 13, Climate Action,” says Hussein Abaza, the institution’s CEO and managing director.

Also last year, there was a “flurry of activity in the hydrogen space” in the UAE, according to a report authored by Julio Friedmann, a senior research scholar at the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs; and Robin Mills, CEO of Qamar Energy, a Dubai-based energy consultancy. The report cited the 2020 announcement of “an ambitious five-year $122 billion capital investment program, including plans for transitioning to a low-carbon future” by the Abu Dhabi National Oil Company (ADNOC). Abu Dhabi officials “mandated ADNOC to become a ‘hydrogen leader.’” Hydrogen is touted as an attractive form of low-carbon energy.

In addition to policymakers and business executives, many other players drive sustainability efforts, including sovereign wealth funds, family offices, ratings agencies and international institutions.

Six sovereign wealth funds, including four from the Gulf Cooperation Council, founded the One Planet Sovereign Wealth Fund Framework in 2017 to help “factor climate change–related risks and opportunities into how they invest and improve the resilience of their portfolios,” according to The Evolution of ESG in the Middle East, a 2021 report by Husain Fekri of GIB Asset Management. Nine more funds subsequently signed on. As a result, the framework is “mobilizing trillions of USD [US dollar] assets towards the integration and consideration of climate-related risks.” In addition, individual funds, including Saudi Arabia’s Public Investment Fund, have taken further moves to align investments with ESG and SDG criteria.

Family offices are influential in the region. Many are experiencing a “generational shift,” and the younger people often care more about sustainability, says Moxie Future’s Robinson.

Anthony Ritossa, chairman of the Ritossa Family Office, organizes high-level, closed-door family office gatherings in Dubai, Riyadh and elsewhere. “We see many companies at our family office summits presenting exciting new opportunities in areas such as water safety, food security, clean energy, net-zero emissions, elimination of single-use plastic and more,” he says.

There is a growing emphasis on ESG by ratings agencies, and it has caught the eye of many in the region. New reports were issued by Sustainable Fitch, a branch of the ratings agency, in the March edition of its ESG Monthly email newsletter, highlighting bank climate stress tests and risk management, the impact of ESG on ratings and the growing importance of ESG on sovereign ratings. The newsletter writers note, “Investors are increasingly placing emphasis on customer-related issues when considering investments in the corporate, financial institution and structured-finance sectors, driven by regulatory and ESG disclosure frameworks.”

“The ratings agencies are looking at certain indicators, and we develop these reports and try to meet the requirements,” says NBK’s Abouali. “We recently did a maturity gap assessment versus three major ratings agencies. We have noticed where the gaps lie. We are doing our utmost to cover them to meet the agencies’ requirements.”

As the recommendations of the Task Force on Climate-Related Financial Disclosures gain traction globally, so are they garnering attention in the region. “Climate risk has risen on the agenda,” says Robinson. Interest by businesspeople in sustainability is also “about positioning with their international peers. They want to tap into investment internationally and adopt best practices.”