I am immersed in this industry every day, so I find it fascinating to track industry trends, but I also spend a lot of time helping my clients understand that it is crucial for investors to comprehend the difficulties and possibilities that businesses encounter due to the rapidly shifting geopolitical and socioeconomic situation.
The environment continues to be at the top of the ESG agenda, and regulators are becoming more aware of the role they must play with governments in ensuring that businesses and nations fulfil their commitments with regard to the environment. This topic has been widely discussed at the recent Abu Dhabi Sustainability Week, with leaders brought together under the theme “United on Climate Action Towards Cop28”.
Abu Dhabi Sustainability Week is an annual event that brings together leaders from government, business, and civil society to discuss and promote sustainable development. The event typically covers a range of topics related to sustainability, such as renewable energy, green buildings, sustainable transportation, and sustainable urban development.
Some key themes that are usually discussed during the event include the importance of collaboration and partnerships between different sectors and stakeholders in driving sustainability, the role of technology and innovation in achieving sustainability goals, and the need for policies and regulations to support sustainable development and impact investments.
The ESG and climate sectors saw a dramatic change in the last year. With global unrest, energy market disruptions, rising interest rates, and rocketing inflation have all combined to create a global cost-of-living crisis and revived geopolitical and macro uncertainty, regulators are stepping up their game on everything from greenwashing to tighter climate target disclosures.
It is simple to understand why investors tend to tread carefully as they strive to grasp the difficulties and opportunities faced by companies when you consider the recent series of climate-related tragedies and the rising politicisation of ESG investing.
As countries prioritise energy security and affordability, continuing global conflicts and the rising inflationary climate may lessen approaching pressure to cut global greenhouse-gas emissions. However, switching from coal and oil to natural gas may not be the only viable choice for power firms. I’ll be keeping an eye on which industries are increasing their use of renewable energy and keeping an eye on longer-term emissions reduction trends in 2023.
The Dubai Investment Fund recently announced the establishment of an ESG investment department with the goal of monitoring the local and global market and identifying the most lucrative sustainability assets.
The Dubai Investment Fund is one of the biggest private investment funds in the world in terms of assets under management. ESGs are also gaining popularity in other GCC countries, like Kuwait. The National Bank of Kuwait recently implemented a sustainable financing framework to aid in the implementation of the country’s climate change strategy and to include ESG criteria in all of the bank’s operations.
It has recently been reported that investors voted against corporate climate policies in greater numbers in 2022 than in 2021, particularly when a company’s emissions trajectory was out of step with goals for the world temperature.
However, the turbulence in the energy market and the emphasis on energy security may alter voting patterns. Because of this, I believe in 2023 we will see less investor scepticism of corporate climate policies under uncertain market conditions.
Despite pledges to stop the destruction of forests globally, 25.3 million hectares of tree cover were lost in 2021, an area larger than the UK. Furthermore, wildfires worldwide destroyed millions more hectares of land in 2022.
Such natural losses were addressed at COP15, and the European Parliament recently adopted legislation mandating that goods marketed in the EU be free of deforestation. As they attempt to keep access to crucial markets in 2023, I’ll be watching to see if companies susceptible to deforestation can strengthen supply chain oversight and due diligence.
Over 25 percent of the clothing we wear is made of cotton, but its adverse effects, such as land erosion and water use, have increased demand for more environmentally friendly alternatives. In response, clothing stores are looking into alternatives and collaborating with independent certifiers of sustainable cotton.
Supply problems have arisen due to the disastrous flooding in Pakistan and the removal of some certifications from China. I’ll be paying close attention to which retailers can manage these impending shortfalls and which ones are willing to support novel, alternative fibres in 2023.
Implementation of ESG requirements is generally optional throughout the GCC region, however criteria development is still going ahead. The fact that high performers in ESG come from a broad range of countries and industries – including Telecom Logistics Industrials (20 percent), Real Estate (10 percent), and Financials (30 percent) – proves that any business can flourish in ESG.
Only half of the region’s top insurers disclose ESG data, but regional insurers are growing in their ESG reporting maturity and establishing important best practises, proving that the GCC is taking ESG commitments onboard.
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