Middle East companies call for new green deal ahead of COP28, says PwC

The auditing firm said businesses in the region are increasingly transparent about their environmental impact, with 70 per cent reporting on their ESG impact

by Gulf Business

May 16, 2023

Companies in the Middle East are transitioning from an environmental, social and governance (ESG) “start-up” to a more sustainable “scale-up” mode, driven by climate risk awareness and regulatory compliance, PwC Middle East said in its latest report.

A survey of business leaders that was conducted by the auditing firm revealed that 64 per cent of companies in the region adopted a formal ESG strategy last year and the number of entities with no ESG strategy has halved.

PwC said businesses are increasingly transparent about their environmental impact, with 70 per cent reporting on their ESG impact and 59 per cent having their reporting formally audited or assured. PwC ESG Middle East report reflects the region’s growing emphasis on sustainability and accountability.

?Companies in the Middle East are rethinking their operations to put in place a more systematic approach to managing #ESG efforts – moving from an ESG “start-up” mode to a richer & deeper “scale-up” mode. Find out more in our latest Middle East report https://t.co/s3bPclxNC4

— PwC Middle East (@PwC_Middle_East) May 16, 2023

Yahya Anouti, PwC Middle East’s ESG leader said that along with an increased appetite and progress seen on ESG in the Middle East, companies are developing a stronger sense of what is needed to further progress on their ESG agenda.

“Businesses expect governments in the region to step up and develop policy frameworks similar to the Green New Deal in Europe for the Middle East region ahead of COP28. We strongly believe that with the right coordinated response from governments, 2023 could be the region’s most environmentally transformative year yet,” said Anouti.

PwC said companies in the region are taking practical steps towards ESG, with 60 per cent of respondents in the survey calling for increased time allocation by the authorities to address ESG-related issues such as risk management, compliance and circular economy.

The Middle East is also witnessing a growing sustainability mandate at the executive level, with over a quarter of respondents stating they now have a chief sustainability officer (CSO), as the responsibility of implementing ESG strategy is shifting from CEOs to CSOs.

Middle East green finance

PwC identified a lack of internal skills and expertise in sustainability as the top barrier to advancing the ESG agenda, according to 41 per cent of companies surveyed.

The auditing firm said despite the Middle East’s active participation in the green finance market, a significant funding gap still exists, with almost one-third of respondents citing funding constraints as a major barrier to ESG implementation.

“ESG transformation requires a joint effort between businesses and government bodies. To accelerate progress, companies must prioritise ESG imperatives, while policymakers should continue to develop clear policies and regulations to support their ambitions,” said Stephen Anderson, PwC Middle East’s strategy and markets leader.

“Green standards improved circular infrastructure and tangible incentives for green growth are becoming increasingly important for companies in the region. The three most desired ESG-related government policies are clear policies and regulations, certification mechanisms, and tangible incentives for green growth, which businesses hope to see announced at COP28.”

The report also highlighted that there is a lack of awareness and access to green finance, with nearly half of the organisations surveyed relying on self-funding for ESG activities and only 13 per cent accessing sustainable finance. This is despite the region’s active participation in raising green finance.

PwC said the report details four critical areas that need to be addressed to further drive ESG transformation in the region including ensuring policy coherence, integrating ESG thinking throughout the organisation’s operations and strategy, building sustainability skills and boosting access and clarity on green financing.

With businesses in the Middle East making progress in their ESG journey, PwC said that with the right coordinated response from governments, 2023 could be the region’s most environmentally transformative year yet.