‘Sustainability is a business priority’, says PwC’s Stephen Anderson

In a rapidly evolving landscape where sustainability is becoming a central business priority, the Middle East is witnessing a significant shift in corporate strategies.

PwC Middle East’s latest report, Sustainability in the Middle East 2024: Breaking Through Barriers highlights the remarkable progress made by companies in the region. According to the report, eight out of 10 companies now have a formal sustainability strategy, a notable increase from previous years.

PwC Middle East strategy leader Stephen Anderson provides insights into the key objectives of this report, the integration of sustainability into business operations, and related trends in the region.

Give us an overview of PwC’s recent sustainability report and its key objectives.

PwC Middle East’s recent sustainability report reveals that companies in the Middle East are increasingly making sustainability a priority in their organisations. This is a breakthrough year for sustainability in the region with one of the big takeaways being that eight out of 10 companies now have a formal sustainability strategy, up from 64 per cent in 2023. The report shows that companies in the region are progressing in the field of sustainability, making it a priority in their corporate agenda.

We’re seeing an increase in companies setting net-zero targets and actively working towards them. The report dives into what’s motivating these changes (regulation, investor pressure, consumer demand), the hurdles companies face (cost concerns, lack of skilled talent, etc.), in addition to the growth of green financing options like green loans and bonds.

The report mentions that more than half of the companies surveyed have fully embedded sustainability in their operations. Can you elaborate on what this integration looks like in practice?

Sustainability is increasingly becoming an integral part of a company’s DNA, woven into many levels of their business, from operations and supply chains to product design and employee training. More and more companies are appointing sustainability leaders and building dedicated teams to drive these initiatives. They’re setting measurable targets, like net-zero commitments, and tracking their progress.

What are some main challenges companies face when embedding sustainability into their operations, and how are they overcoming them?

We’re seeing greater action and focus on incorporating sustainability into the core of the organisations’ operations, but there’s still work to be done in upskilling, infrastructure, regulation, and funding to fully unlock the region’s sustainable potential.

For example, you can’t continue to drive sustainability strategies and initiatives without the right people. The region needs a skilled workforce that understands sustainability trends, reporting, changing regulations, and emerging technologies. This means investing in upskilling programmes, attracting specialist global talent, and engaging in educational programmes.

Likewise, sustainable projects often require significant investment, and while green financing options are increasing, there needs to be a clear articulation of the business case for sustainability to a wide range of stakeholders from investors and customers to internal teams, highlighting the long-term ROI and risk mitigation benefits.

Nearly one in two companies has appointed a chief sustainability officer (CSO) or expects to do so in the next year. What is driving this trend, and what impact does a CSO have on a company’s sustainability initiatives?

The survey highlights the growing trend of companies creating top-level positions, such as chief sustainability officer (CSO) or sustainability director roles just below the C-suite. The CSO role is developing in the Middle East. Companies are realising that sustainability is a powerful differentiator, attracting investors and customers, and retaining and attracting talent. There’s also increased attention and focus from stakeholders demanding transparency and tangible action. Having an organisational framework and a CSO to lead this change helps unlock the potential.

Appointing a CSO is a powerful statement of intent. It’s an investment in the long-term success of a business and a commitment to building a more sustainable future. But it’s important to remember a CSO needs buy-in from the top and a culture that embraces sustainability at every level.

Can you share some examples of how the role of the CSO has evolved in the Middle East?

The CSO role in the region has gone from a “nice-to-have” to a “must-have” leadership position. It is now more than managing compliance and reporting, focused on minimising risks and avoiding negative media attention. Now, they’re becoming embedded in the organisation, as part of the leadership team, creating and developing a cohesive strategic direction to ensure sustainability goals are inherent in the overall business strategy. They identify new markets, attract investors, and build brand value through sustainability.

For 90 per cent of our survey respondents, these new leadership roles have increased their sphere of influence and now involve setting sustainability strategy and policy and overseeing monitoring and reporting. For this year’s survey, in the question about the remit of these roles, we provided a choice of 10 areas of sustainability-related activity — from stakeholder management to communication and marketing. Almost 80 per cent of respondents indicated that their sustainability role covered seven or more of the ten activities listed and nearly 20 per cent said their role covered all of them.

The report highlights the importance of Generative AI and workforce training in filling skills gaps. How can businesses harness these technologies and training methods effectively to build a robust talent pipeline for sustainability?

Our CEO survey earlier this year showed that 73 per cent of CEOs are optimistic about the potential impact of GenAI, believing that it will significantly change how their company creates, delivers, and captures value in the next three years, while 38 per cent revealed their companies have already adopted GenAI.

However, the responses to our latest sustainability survey suggest that, for many Middle Eastern companies, these are still early days in AI deployment in this area. We found that respondents are looking at the technology to improve existing capabilities, such as data analysis and insights or reporting, rather than for deeper operational purposes, such as optimising supply chains or developing circular economy models.

As I have outlined earlier in challenges in terms of workforce training, building a strong talent pipeline for sustainability requires a multi-faceted approach that combines engaging training methods, cutting-edge technology, and a culture that values continuous learning and development. By investing in their workforce, businesses can equip employees with the skills and knowledge they need to drive a more sustainable future. Many ways can help this be achieved. Sustainability training shouldn’t be limited but embedded into onboarding programmes for new hires and ongoing development opportunities across all departments.

Mentorship programmes that pair experienced sustainability professionals with junior employees can foster knowledge transfer and guidance while supporting employees in pursuing relevant certifications and attending industry conferences to help them stay ahead of the curve.

Engagement can be increased by clearly articulating how sustainability skills contribute to the company’s overall strategy and bottom line and highlighting success stories demonstrating how employees’ skills make a tangible difference in the company’s sustainability journey.

What role do higher education institutions play in addressing the sustainability skills gap in the region?

Our report shows that one in three companies say a lack of internal skills and sustainability expertise remains the biggest challenge. Universities and colleges are essential in tackling the sustainability skills gap in the Middle East.

Notably, in a workplace survey we conducted last year, among the regional respondents, 62 per cent expressed the belief that green skills would play a crucial role in shaping their careers. This should start early, developing education with sustainability at its core.

Sustainability can’t be an elective or a niche programme as it becomes more and more embedded across all departments of an organisation, and this will impact every discipline, from engineering and business to arts and humanities.

There is potential to team up with companies to create internships, research collaborations, and hands-on projects that give students practical experience that will ensure a future generation of sustainability advocates.

Businesses are increasingly accessing new sources of finance, such as green bank loans and bond issues. Can you discuss how these funding sources are helping companies advance their sustainability agendas?

Green finance is seeing greater traction across the Middle East. It gives businesses the financial resources, incentives, and market signals they need to realise their sustainability ambitions.

While self-funding remains the most common green finance source for two-fifths of the survey respondents, it is more likely than last year to feature alongside other options, with 34 per cent revealing that they would opt for green loans and 33 per cent considering capital markets such as green or blue bonds, as part of their financing options.

The incentives are clear. Green loans often come with lower interest rates than traditional ones, making sustainable investments more attractive. Securing a green loan also demonstrates a company’s commitment to sustainability, boosting its reputation with investors, customers, and employees – both existing and potential.

Meanwhile, green bonds can attract investors specifically interested in supporting sustainable initiatives and providing access to a larger pool of capital. These findings echo our other research suggesting that the green finance sector has shown rapid expansion in recent months.

This includes a more than doubling in the issuance of green bonds and sukuk in the Middle East to $24bn in 2023, according to PwC’s latest Middle East Economy Watch.

The rise of green finance is about more than just funding individual projects. It’s creating a virtuous cycle, accelerating the transition to a more sustainable economy.

Are there any specific sectors in the Middle East that are leading the way in securing green finance, and what lessons can other sectors learn from them?

The real estate sector is an interesting area to note. Demand for green buildings is rising as tenants prioritise sustainability and energy efficiency.

Developers are realising the financial benefits of green certifications and lower operating costs, such as lower energy and water bills, to attract investors. Certifications such as LEED, BREEAM, Pearl, and others independently verify sustainability performance, enhancing credibility with financiers.

What other sectors can learn from this is the need to build a strong business case, clearly demonstrating your sustainability initiatives’ financial and environmental benefits.

Read: Building businesses on the three pillars of sustainability