However, for investors, ESG was still considered a higher priority in the UK and KSA. The situation came fourth when the pandemic happened, and everyone got exposed on all fronts of “E”, “S” and “G”. But to answer the question of importance, ESG has gained a lot of traction in recent times. ESG implementation remains most prevalent among Sovereigns in the West (76%) but it is now also common in the Middle East (67%) and Asia (59%) following an increase in adoption. The fact, however, remains that ESG framework implementation is crucial because of the strategic role the Middle East plays in energy transition, in pioneering low carbon, hydrogen driven and circular economies, developing sustainable destinations, and localizing supply chains. ESG will continue to both drive this transformation and create a world leading competitive advantage. Two-thirds of sovereign wealth funds in the Middle East have implemented a top down ESG approach, according to an Invesco Global Sovereign Asset Management Study back in the day.

How have countries in the Middle East responded to the rising ESG importance?

A few years ago, the Saudi Exchange started working to promote ESG awareness to encourage sustainable investment and initiatives by collaborating with issuers and investors. Since then, the Saudi exchange has also published certain disclosure guidelines for large companies which draw a map for other companies for the do’s and don’ts of ESG development in their sector. These metrics are highly diverse from talking about incentivized pay in governance, to gender discrimination in social, to emissions intensity in environmental.

The Middle Eastern states plan on building their cities more sustainable as urban infrastructure can address many energy challenges and shocks. Recently, there is also a surge in nature tech investing, which in layman terms is the market for nature-related technologies that help companies understand, mitigate, and adapt to the twin climate and biodiversity crises that reached USD 2 billion in 2022. The states present in the Middle East are also focusing on other matters such as climate control and have been collecting data for all these matters so that they can do better. The “E” in the ESG is being fully embraced in the region by the governments present in the Middle East, more so than the other branches which leaves great room for private initiatives to implement on “S”.

The Kingdom of Saudi Arabia has experienced a significant surge in ESG investing, thanks to government regulations that prioritize transparency and disclosure. As a result, investment firms and banks have begun to roll out a plethora of ESG investment products and services. This trend is expected to continue as the country seeks sustainable economic growth and attempts to decrease its dependence on oil in the years to come.

Bahrain too has shown development in their ESG understanding. For example, the Bahrain Economic Vision 2030 outlines the government’s commitment to sustainable development and encourages businesses to adopt ESG principles. The vision aims to develop a diversified economy that is sustainable, competitive, and inclusive. 

Similarly, Qatar has seen rapid growth  in ESG investing as part of its efforts toward sustainable economic growth. The government has invested in renewable energy and sustainable infrastructure projects, and investment firms and banks have introduced ESG investment products and services. The number of ESG investment funds is expected to increase in the future.

 The Kuwait Stock Exchange (KSE) launched the first Sustainability Index in Kuwait in 2021. The index tracks the performance of companies listed on the KSE that meet certain ESG criteria, such as environmental compliance, social responsibility, and corporate governance.

Some common ESG regulations in the Middle East

• Mandatory reporting: Some Middle Eastern countries require companies to disclose ESG-related information as part of their reporting requirements. For example, the UAE requires all listed companies to provide an annual sustainability report.

• Stewardship codes: Some countries have developed stewardship codes that encourage institutional investors to engage with companies on ESG issues. For example, Saudi Arabia’s Capital Market Authority has developed a stewardship code that sets out principles for responsible investment and active ownership.

• Green bonds: Several Middle Eastern countries, including the UAE and Qatar, have launched green bond initiatives to support the financing of sustainable projects.

• ESG funds: Governments in the Middle East are also encouraging the development of ESG investment products. For example, in 2020, the Abu Dhabi Investment Authority launched an ESG-themed fund.

These are just a few examples of the ESG regulations that are emerging in the Middle East, as governments and regulators look to promote sustainable investment practices in the region. We at HarAik understand the importance of ESG now more than ever; it’s a worldwide set of strategies and mechanisms that our team can help our clients get in line with, as well as work on the internal firm structure based on ESG analysis.