First Abu Dhabi Bank P J S C : The 2022/23 State of ESG in the GCC

The 2022

State of ESG

in the GCC

Publication:

Sponsored by:

2023

www.sustainablesquare.com

Table of Contents

Introduction	02
Acknowledgements	04
Glossary	05
Methodology	08
Respondents' Profile	09
Executive Summary	12
Trends from 2018 to 2022	18
Study Findings	26
• What Strategies are Being Adopted?	27
• Most Important Factors for a Successful Sustainability/ ESG Strategy	28
• Industry Analysis of Strategy Adoption	30
• The Extent of Strategy Adoption	31
• Top GCC Countries Prioritising Net Zero	32
• Industries Prioritising Net Zero	32
• Framework Alignments	33
• Corporate Social Responsibility (CSR) Priorities	38
• Disclosure & Reporting	39
• ESG Priorities	42
• Incorporation of ESG Factors	46
• Transition to a Net Zero Economy	48
• Future Outlook	51
Best Practices and Key Takeaways	54
About Sustainable Square	58

2 | The 2022 State of ESG in the GCC

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Introduction

At Sustainable Square, we believe that in order to achieve climate security for future generations, the work we do now must be collaborative and dynamic in order to adapt to the ever-evolving context we operate in. In the Gulf Cooperation Council (GCC) region, we've observed that one of the main challenges towards more efficient climate action is that data transparency in the region and best practices are minimal, and this knowledge sharing is required.

In meetings and conferences, data cited is usually taken from other countries or regions, such as the United States (US) and Europe, thus failing to provide insights relevant to the GCC region. Data cited on the global climate agenda is often very generic and does not properly analyse the work that is being done in this region, to the extent that is due. This has ultimately led to a lack of awareness of best practices, a lack of comprehensive solutions, and a lack of visibility for the work that is being done in the GCC region. As the UAE prepares to host COP28, we would like to shine the spotlight on the ESG trends and practices in the GCC region and provide an up-to-date and comprehensive overview of what the current ecosystem looks like in this region.

Not only can the findings of this study be used by companies to better assess and benchmark their sustainability practices on a national and regional level, but they can also be used by governments as a reference point to regulate sustainability performances in the private sector and identify where improvements can be made.

Acknowledgements

We would like to thank all of our respondents for their participation that contributed to this survey and report. We truly appreciate the time and effort you have taken towards giving us a comprehensive understanding of your work, and we hope that the action being taken towards sustainability will serve as a guide for other companies and regions.

We sincerely thank our sponsor, First Abu Dhabi Bank (FAB), a leader in the financial services sector, whose commitment to sustainable business practices in the GCC region is indisputable. FAB has made the execution of this study efficient with the invaluable support they have extended us. Additionally, we would sincerely like to thank the Middle East Investor Relations Association (MEIRA), without whom this work would not have been possible. It is the shared objective for both MEIRA and Sustainable Square to encourage transparency in the sustainability field in this region, and the MEIRA team has put in significant effort towards making this report possible. We truly appreciate the collaborative approach you have taken with us, and we hope that this report reflects the time and effort that our partners have put in.

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Foreward

It gives me great pleasure to release the results of this study to the GCC market. This is a study for the region, about the region and by the region.

As Sustainable Square, our regional industry studies on ESG and sustainability provide data that captures the trends and evolution of our rapidly evolving market. I hope that as we intended, this study will be a valuable resource for decision making on ESG and sustainability and for companies to benchmark with their peers in the GCC.

As organisational sustainability becomes imperative for responsible business across the world, companies in the GCC region are compelled to align to the new regulatory dispensation. But beyond compliance, this report points to evolving corporate values as a driver for sustainability. Companies now realise that decarbonisation strategies must be integrated into business, with leadership from the board and executive being critical. As this report demonstrates, companies have grown to appreciate the risks and opportunities sustainability presents.

With over a decade of expertise in partnering with companies to outline their ESG and sustainability roadmaps, Sustainable Square is at the forefront of the transformation of business in the region. In our consultancy work, we have supported over 140 private sector clients on more than 250 projects, helped create over 10 government policies in the GCC and developed the world's first AI powered ESG report auto-drafting software. This gives us a wealth of experience on ESG and sustainability practices in the region, which we bring to bear in this study.

We had the invaluable partnership of First Abu Dhabi Bank (FAB) and Middle East Investor Relations (MEIRA) who have both demonstrated leadership in sustainability by going beyond their own organizational transformation to become champions for the cause of responsible business in the region.

We invite you to engage with us and give us feedback on this study and its impact in the GCC region. Together, let us take the path to net zero with unwavering commitment, for the benefit of our organisations, our region and the world at large.

Monaem Ben Lellahom

Group CEO

Sustainable Square

Foreward

It's a widely accepted fact: to get to net-zero, corporate entities must prioritise sustainability as an essential part of their business.

Of equal importance, this journey must be open and transparent, demonstrating impact with compelling evidence to support business leaders in navigating the challenges of decarbonisation as well as the opportunities that come with it.

Without a view into how companies are managing climate change effects or portfolio net-zero alignment, there's no way to accurately understand the financial effects of a warming planet.

Here in the Gulf, sustainability related developments have evolved rapidly in the last five years and there's now an immense opportunity to capture valuable insights from these developments to inform the path ahead.

With this in mind, Sustainable Square and First Abu Dhabi Bank (FAB) have partnered to develop the 2022 State of ESG in the GCC report.

The research undertaken for this report uses survey-based questions to identify the status of sustainability and ESG factors among corporate entities in the region.

Alongside this, the report has identified the drivers behind these trends, and it outlines the forces likely to shape the future of ESG across the region.

Amongst its findings: the report reinforces why greater access to reliable, timely, and standardised information serves to benefit institutions in managing the risks associated with climate change - specifically, highlighting how business leaders can make more effective decisions armed with this information.

At FAB, we recognise that companies need to start embedding sustainability in order to support the transition to a low carbon future.

As a regional pace-setter bank in sustainability we believe that a heightened level of transparency would bring vast benefits to the region. For a start, it would foster greater market integrity - and at the very same time, prompt corporates to improve their own environmental performance, thus creating a self-fulfilling cycle.

I believe this report provides that all-important window into the entire GCC ESG ecosystem, both present and future, serving as a valuable resource to some of the most important current issues in the world of sustainability.

Shargiil Bashir

Group Chief Sustainability Officer

First Abu Dhabi Bank (FAB)

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Glossary

SUSTAINABILITY

The management of economic, social and environmental risks to ensure the long-term sustainable growth of businesses. It is about applying conscientious, ethical and responsible practices within business operations and driving a positive impact in the surrounding community.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

The management of social risks and responsibilities of an organisation to ensure long-term sustainable growth. CSR in this study relates mostly to an organisation's work within its local communities. We view CSR as a part of the overall sustainability of an organisation since it is mostly focused on the "social" aspect of sustainability.

GLOBAL REPORTING INITIATIVE (GRI)

GRI is the most widely adopted independent standard by organisations reporting on impact. It is an independent, international organisation that has pioneered sustainability reporting since 1997. (Source: www.globalreporting.org)

UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS (UN SDGs)

The SDGs are the blueprint set by the UN calling for everybody from governments to individuals to work together to achieve a better and more sustainable future for all. They address the global challenges we face, including those related to poverty, inequality, climate, environmental degradation, prosperity, peace and justice. (Source: www. un.org)

INTEGRATED REPORT (IR)

An Integrated Report is a concise overview of how an organisation's strategy, governance, performance and prospects lead to the creation of value over short, medium and long-term periods. The IR framework was developed by the International Integrated Reporting Council (IIRC) in 1999. (Source: www.integratedreporting.org)

UNITED NATIONS GLOBAL COMPACT (UNGC)

The UNGC is a framework for companies to align strategies, policies and operations with 10 principles on human rights, labour, environment and anti-corruption. The UNGC framework is aligned with the Sustainable Development Goals. (Source: www.unglobalcompact.org

SUSTAINABILITY ACCOUNTING STANDARDS BOARD (SASB)

The Sustainability Accounting Standards Board (SASB) is an organization that develops and maintains sustainability accounting standards for use by publicly traded companies in the United States. SASB aims to provide standardized guidelines for companies to disclose financial material sustainability information in their public filings to the U.S. Securities and Exchange Commission (SEC). (Source: www.sasb.org/)

NET-ZERO

"Net-zero" refers to achieving a balance between the greenhouse gases emitted into the atmosphere and those removed from it, resulting in no net increase in overall emissions. This concept has gained prominence in the context of combating climate change and is often used as a target for countries, companies, and other entities to reduce their carbon footprint. (Source: www.un.org/en/climatechange/net-zero-coalition)

GREENHOUSE GAS PROTOCOL (GHG PROTOCOL)

The GHG Protocol is a widely recognized and widely used accounting tool for measuring and managing greenhouse gas (GHG) emissions. It provides a standardized framework for organizations to quantify and report their emissions, enabling them to set reduction targets and implement strategies to address climate change. (Source: www.ghgprotocol.org/)

CARBON DISCLOSURE PROJECT (CDP)

The Carbon Disclosure Project (CDP) is an organisation that operates a global disclosure system for companies, cities, states, and regions to measure and disclose their environmental impacts, including carbon emissions and climate-related risks. It collects and analyzes environmental data from thousands of organisations worldwide and shares the information with investors, policymakers, and the public to promote transparency and encourage sustainable practices. (Source: www.cdp.net/en/)

TASK FORCE FOR CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) -

The Task Force on Climate-related Financial Disclosures (TCFD) is a global initiative established by the Financial Stability Board (FSB) to develop consistent and effective climate-related financial disclosures for companies and financial institutions. It provides a framework for organizations to assess and disclose climate-related risks and opportunities, helping investors, lenders, and other stakeholders make informed decisions regarding climate- related financial impacts. (Source: www.fsb-tcfd.org/)

SCIENCE-BASED TARGETS INITIATIVE (SBTI)

The Science Based Targets Initiative (sbti) is a collaborative effort between organizations such as the United Nations Global Compact, the World Resources Institute (WRI), and other partners to promote science-based target setting as a means to combat climate change. Sbti provides guidelines and criteria for companies to set greenhouse gas emission reduction targets that align with the latest climate science and contribute to limiting global warming to well below 2 degrees Celsius. (Source: www.sciencebasedtargets.org/)

THE EQUATOR PRINCIPLES (EP)

The Equator Principles is a risk management framework adopted by financial institutions to assess and manage environmental and social risks in project financing. It provides a set of guidelines for banks and other financial institutions to evaluate and address the potential environmental and social impacts of projects they finance, with a focus on sustainability and responsible lending practices. (Source: www.equator-principles.com/)

WORLD BUSINESS COUNCIL FOR SUSTAINABLE DEVELOPMENT (WBCSD)

The World Business Council for Sustainable Development (WBCSD) is a global network of businesses committed to promoting sustainable development and finding solutions to environmental and social challenges. It brings together companies from various sectors to drive sustainable business practices, advocate for policy change, and collaborate on sustainability initiatives. (Source: www.wbcsd.org/)

UNITED NATIONS ENVIRONMENT PROGRAMME FINANCE INITIATIVE (UNEP FI)

The United Nations Environment Programme Finance Initiative (UNEP FI) is a partnership between the United Nations Environment Programme and the global financial sector. UNEP FI works to mobilize the financial industry to incorporate sustainability principles into its practices, promote sustainable finance, and support the integration of environmental and social considerations into financial decision-making. (Source: www.unepfi.org/)

U.S. OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION (US OSHA)

The U.S. Occupational Safety and Health Administration (OSHA) is a federal agency responsible for ensuring safe and healthy working conditions in the United States. OSHA sets and enforces workplace safety standards, provides training and education, and conducts inspections to promote workplace safety and protect workers' rights. (Source: www.osha.gov/)

8 | The 2022 State of ESG in the GCC

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Methodology

Sustainable Square developed the survey questions based on our expertise in the ecosystem of sustainability, ESG and CSR in the Gulf Cooperation Council (GCC) region. The questions were specifically targeted at increasing general understanding about the current status of sustainability and ESG practices among companies in the region, identifying the drivers behind them and recognising future outlooks.

The survey was sent and shared publicly to companies across the 6 countries in the GCC region.

The nature of questions was mostly multiple choice, with an "other" option offered for almost every question, allowing respondents to give a more detailed response when the choices offered did not apply to them. To maximise efficiency and accuracy, there were limited open-ended questions.

You will notice that some questions have different number bases - meaning that not all questions are answered from the total number of companies surveyed. This is because the survey had a cascading logic - depending on the answer a certain company chooses, it might get a different follow-up question. So for example, companies who have selected that they have a 'Sustainability/ ESG Strategy' will get questions relevant to that strategy that other respondents who have answered otherwise would not get.

Respondents' Profile

United Arab Emirates

Kingdom of Saudi Arabia

Qatar

Oman

Kuwait

Bahrain

44%

20%

12%

11%

8%

5%

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Type of Company

Sector

Privately Owned	Family Business
37%	19%

	Type of
Government	Company
8%

Semi-Government	Multinational
16%	19%
	Disclaimer: total percentages may not add to 100% due to rounding up of percentages

listing	53%	%
Public		47

Financial

Sector

Other

Services

Food &

Beverage

Oil & Gas

Industrials, Metals & Manufacturing

Tech, Media

• Telecommunications Utilities
  Healthcare

Retail

Construction

• Materials Automotive

Conglomerate

Tourism &

Leisure

Transport &

Logistics

Chemicals

25%

19%

8%

7%

7%

6%

6%

4%

3%

3%

3%

3%

3%

2%

2% 2%

Disclaimer: total percentages may exceed 100% due to rounding up of percentages

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Executive

Summary

What Strategies are Being Adopted?

What types of strategies are companies currently adopting?

49%

18%

3%

1%

9%

20%

Mixed

Strategy

Sustainability/ ESG Strategy Only

Environment

Strategy Only

Net Zero Only

CSR

Strategy Only

No

Strategy

This data depicts the popularisation of Net Zero strategies, which has been a rapidly developing aspect within the sustainability space. While a small handful of companies have only a Net Zero strategy in place, a larger portion of survey respondents mentioned having a Net Zero strategy in place alongside another form of strategy as well.

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Most Important Factors

for a Successful Sustainability/ ESG Strategy

Alignment between			54%
sustainability / ESG
& business strategy	16%
A mechanism to
track sustainability/
ESG performance	16%
Board-level
engagement	9%
Existence of
sustainability/ ESG
knowledge & expertise	5%
Employee
engagement
0%	20%	40%	60%

Of the survey respondents, 54% agreed that the alignment between Sustainability/ ESG strategy and the business strategy was the most important factor for a successful Sustainability/ ESG strategy. In our previous study, the 2018 State of Sustainability and CSR in the MENA region, the most important factor was 'a mechanism to track sustainability performance' which has now reduced popularity due to the development and evolution of various standards and frameworks in the sustainability sector.

Sustainability at a

Board-level Discussion

Are companies discussing ESG risks and opportunities at a board level?

YES	NO	?	UNAWARE
51%
%		%
	26		23

We asked our respondents whether the company discussed ESG risks and opportunities at a board level and the majority of the respondents said yes, that these discussions were taking place at a board level. This shows that the ESG risks and opportunities are being considered progressively by companies and that these factors do have an influence on how these businesses operate.

Sustainability Reporting and Disclosure

When companies were asked how they disclose their sustainability/ ESG-related information, 82% of survey respondents said they report in the format of a sustainability/ ESG report.

Sustainability/	Integrated	Others
ESG Report	Report	16%
82%	23%

Disclaimer: respondents were allowed to select more than one option, thus the total exceeding 100%

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CSR Focus Areas

Top three priorities

80% Education

70% Environment

61% Women's Empowerment

Top Drivers for Incorporating ESG Factors

Top three drivers for incorporating ESG factors

Compliance with	Corporate	Stakeholders'
Regulations & Policies	Values & Culture	Demands
64%	43%	29%

The top three drivers for incorporating ESG factors as per survey respondents included Compliance with Regulations and Policies at 64%, Corporate Values and Culture at 43% and Stakeholders' Demands at 29%. This showcases that a mix of external requirements and internal demands push companies to address ESG concerns.

Disclaimer: respondents could select multiple options.

Top GCC Countries

Prioritising Net Zero

From the respondents that report having a Net Zero strategy, below is the country hierarchy indicating which countries have the highest prevalence and prioritisation of net-zero aspects.

1	2	3
United Arab Emirates	Kingdom of Saudi Arabia	Oman

Disclaimer: This is reflective of the breakdown amongst the respondents for the survey only, actual country prioritisation of net-zero may differ

Transition to a

Net Zero Economy

What initiatives are companies implementing to transition to a net zero economy?

The majority of respondents have noted that their companies are adopting innovative technology, adopting energy efficiency measures, and creating short/ medium/ long-term plans and goals to transition to a net-zero economy.

Adopting innovative	65%
technology
Adopting energy	56%
efficiency measures
Creating short, medium	56%
and long term plans and goals
Reducing emissions	54%
across the value chain
Deployment of	54%
renewable energy
Implementing resource efficiency	50%
and waste management initiatives

Disclaimer: respondents could select multiple options.

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