More Business Leaders In The Middle East Need To See ESG As A Catalyst For Growth

It may come as a surprise that despite pressing global economic challenges, business optimism is high in the Middle East with economies in the UAE and KSA on the upward trend. The vibrant local economic ecosystem across the region is bursting with ambition and energy in innovation and entrepreneurship across many different sectors, and this is leading to an upbeat outlook about the future from business leaders.

Around 7 out of 10 executives are optimistic about the economy despite the global economic uncertainty, according to a recent survey we at Gedeon Mohr & Partners did of 250 business leaders across the UAE and Saudi Arabia, with almost half (46%) of executives very optimistic. This, no doubt, may be down to the fact that the International Monetary Fund has forecasted that the UAE’s economy will expand by over 6% this year, while Saudi Arabia’s economy will grow at its highest rate in a decade at 7.6%. These figures contrast with the broader global picture, which has seen growth forecasts slashed as global economic uncertainty grips the globe.

Despite the optimism for the future, business leaders are alert to the uncertainty and potential costs increases, along with social issues such as diversity, wage equality, data privacy, and the growing concerns around climate change. Over 90% rank sustainability as a top business priority- yet, even with the huge focus on this issue, it is alarming to see that environmental, social, and governance (ESG) propositions are only seen as a catalyst for growth by 2.4% of executives surveyed in the UAE, and 0% in Saudi Arabia.

It is apparent that businesses in the region do not have enough formal ESG policies in place to address the growing threats. As strong ESG propositions become more compelling to contribute to a sustainable world, companies here are not seeing it as an opportunity, or not taking it seriously for business growth. Working closely with businesses, helping them surface, ride through rough tides, and sail ahead to new lengths, I now see the lack of an ESG framework as an anchor preventing their growth.

Business leaders must understand that ESG metrics are becoming more and more important to investors, consumers, employees, lenders, and regulators. Investors and lenders are becoming increasingly attracted to organizations that invest in ESG, because they see ESG reporting as being a vital component of earning reports. According to a Gallup study earlier this year, 48% of investors are interested in sustainable investing funds. Similarly, authorities are more likely to grant access, approvals, and licenses to companies that practice ESG. Companies with strong ESG propositions also face significantly fewer regulatory and legal interventions, resulting in greater strategic freedom.

Today’s socially conscious consumers also prefer companies that are transparent about their efforts in this space. Accenture surveyed more than 25,000 consumers across 22 countries in 2021, and 50% reported that the COVID-19 pandemic changed their priorities when shopping for brands. These consumers are willing to pay more for brands that reflect their values around sustainability.

In addition to this, ESG factors can improve a company’s credit rating and boost its overall financial performance. Small sustainability efforts such as going paperless, or recycling, can improve a business’s bottom line and return on investment (ROI). ESG-integrated businesses identify cost-saving opportunities, reduce waste, save energy, and reduce their operating expenses. The list of benefits is long, but the time is now.

Embedding ESG strategies with clear governance is the first step for executives. The sustainability of an organization depends on whether it creates value for all. An effective ESG methodology ensures that the needs of all stakeholders are satisfied. Furthermore, a good strategy will have defined ambitions and priorities that are aligned with a company’s business rationale and with national goals. It will also set clear key performance indicators (KPIs) and invest in robust data collection systems and analysis. The process can be complex for large corporations and overwhelming for SMEs, but creating a result-oriented, long-term strategy is important.

We know sustainability matters to business now more than ever, as the world faces up to the impending crisis from climate change, with leaders putting it at the centre of their growth plans. But alongside this, they must also be producing comprehensive ESG plans committed to risk management, cost reduction, and environmental stewardship. Furthermore, it demonstrates that a business is willing to listen to their consumers who are calling for action in this space. It shows they are willing to adapt to market changes, and take a strong stand on socioeconomic issues, such as customer satisfaction, labor standards, and social injustice.

There is a great deal of opportunity in ESG for those who understand its potential, and its power in driving businesses’ sustainability agendas. At the same time, it would not be wrong to equate an effective ESG framework with future robustness. By reducing risk, aligning with customer values, and positively impacting people and the environment, ESG-centric companies are bound to drive profitable growth and tap into new opportunities.

Related: The Time Is Now: Why Conscious Investment Is Ready To Take Off In The Middle East