GCC countries need to move faster and take bigger steps towards their ESG goals in order to meet net zero 2050 targets.

New York-listed insurer Aon also said countries in the GCC area will have to do more towards environmental and social governance (ESG) if they want to attract foreign investment in a competitive environment.

While the UAE is targeting net zero by 2050 and Saudi Arabia by 2060, policymakers need to do more to outline goals, as a lack of formal governance around ESG is currently impeding progress, the insurer said.

The need to move faster applies to companies too - Aon said that across the Middle East, 47% of companies surveyed have a formal climate policy while 42% have an ESG report in place.

Nearly three quarters, 73%, said their board is involved in defining ESG policy, but there needs to be accountability at board level for there to be real progress, Aon said.

“The Middle East region is quickly catching up to global peers regarding ESG efforts,” the report said. “If companies want to attract foreign investment and meet government environmental pledges, they must establish formal ESG reporting standards and ensure their company strategy really supports ESG goals.”

Aon said businesses need to adapt to an environment where success is no longer measured by financials alone, and factor in sustainable business advantage and with ESG at the heart of the operation.

Frederique Lange, partner and head of Aon’s ESG and Governance advisory practice in EMEA said there will be increased scrutiny on ESG issues in the region.

“In other parts of the world, especially in Europe, due to earlier regulatory and societal pressures ESG considerations are at the forefront of management attention and have become a building block of any strategy and communication,” she said.

Aon cited measures including the UAE’s Securities and Commodities Authority (SCA) now requiring the country’s 130 listed public joint stock companies to adhere to ESG disclosure requirements, as well as the Saudi Arabian Stock Exchange Tadawul also publishing ESG guidelines, as putting pressure on listed companies to report progress.

Playing catch up

GCC states, which have historically lagged behind other regions in the global movement towards better governance, are now having to catch up fast, the report said, as they tackle gender diversity, board independence and corporate disclosures all at once.

More than 60% of the survey respondents have put ESG policies and procedures in place or are taking steps to do so, but the reliance of GCC states on fossil fuels for energy means they are considered most at-risk the effects of climate change consequences including desertification and unliveable temperatures, Aon added. 

On a positive note, governments in the GCC are diversifying their economies away from fossil fuels, investing heavily in renewable energy and tackling water reuse and recycling and with the UAE’s hosting of COP 28 the country will dramatically increase its efforts to reduce greenhouse gas emissions.

But, while three out of four GCC boards are involved with creating an ESG vision and mission, ongoing follow up and action is mostly delegated to committees, and while more than half are doing standalone reporting, they are behind their peers in other regions that have instituted separate annual ESG reports and have board oversight on the matter.

Only 33 percent of GCC respondents have a formal diversity, equity and inclusion policy for the board and management, which shows there is more required from boards to drive progress, Aon added, concluding: “While the social factors of ESG have become a big focus, there is little sign of strategy. Knowing that you have a problem isn’t the same as solving it.”

Dedicated staff, concrete actionable strategy, are needed, as without them, GCC companies will struggle to make the changes needed to keep up with international peers, the report concluded.

(Reporting by Imogen Lillywhite; editing by Daniel Luiz)