Unveiling the Green Facade: Comparing FTSE100s and MENA's progress in climate transition planning

The recent news of Financial Times Stock Exchange (“FTSE”) 100 companies failing on credible climate transition plan has wider implications in the context of the current environmental, social and corporate governance (“ESG”) reporting landscape in the MENA region. This raises questions about how large firms and companies in the region compare regarding credible transition plans.

To unpack the criteria for ’credible’, we can look at various factors, such as company’s commitment to reducing its carbon footprint, its efforts to adopt renewable energy sources, its support for sustainable practices, and its transparency in disclosing its climate risks and impacts.

The business environment in this area has been mostly concerned with financial issues. Corporate Social Responsibility (“CSR”) activities, which were mostly comprised of voluntary efforts by specific governmental entities and stock exchange authorities to encourage compliance, played a significant role in the gradual growth of social and environmental challenges in the MENA region. Businesses in the MENA region, like many of their global counterparts, see ESG as something they would like to have rather than a requirement. 

Over time, the ESG movement has gained momentum and has been adopted under the banner of "sustainability," garnering attention from the general public and prominent investors alike. CSR has gradually become less prominent within the broader sustainability movement, as more specific concepts such as community performance have been developed and integrated into a more comprehensive and measurable framework that assesses economic impact. The United Nations Sustainable Development Goals (“SDGs”), the Global Reporting Initiative (“GRI”), and various national development plans that are tailored to specific jurisdictions have played a critical role in advancing sustainability. These frameworks have compelled many businesses to issue sustainability reports, which demonstrate their performance in relation to these areas in a professional context.

The MENA region is confronted with environmental challenges in relation to specific industries, which are subject to varying degrees of impact depending on the size and scale of a company's operations. These issues fall under the purview of ESG concerns, which have gained increased attention in recent years as a crucial aspect of sustainable business practices. As such, it is imperative for companies operating in the region to consider and address these ESG issues comprehensively and proactively.

The most prevalent environmental concerns, for instance, in the banking and service industries are linked to issues like grid electricity, water use, and the use and recycling of materials, such as paper, plastic, and electronics. In addition to the expenses involved in the production and disposal or recycling of construction-related materials, the real estate industry faces the same problems. When adhering to any linked standards, such as the Global Real Estate Sustainability Benchmark (“GRESB”) or the Leadership in Energy and Environmental Design (“LEED”) accreditation, this industry would have to take environmental issues into further consideration.

The MENA region is currently facing a significant challenge in catching up with other developed nations in terms of assessing and responding to environmental issues. While there is growing awareness and interest in environmental challenges in the region, the level of sophistication and maturity in reporting and response mechanisms is not yet on par with that of more established regions, particularly in Europe. It is crucial for stakeholders in the MENA region to prioritize and invest in advancing their environmental reporting and response capabilities to effectively address the growing environmental challenges in the region and contribute to global sustainability efforts.

The workplace, the marketplace, and the community are three connected realms into which social challenges in this area can be divided. The scope of workplace reporting is broad. These include the variety of employee demographics, training and development opportunities, performance management and evaluations, retention and turnover, pay and benefits, nationalization, and general adherence to local labor regulations.

Market compliance, as defined by official sources, pertains to the ethical adherence of companies to various rules and guidelines. However, within this context, a company's treatment of its consumers is a prevalent consideration. The level of service that a company provides to its customers is a critical factor in its ability to comply with the market's standards. Therefore, market reporting often evaluates a company's interaction with its clients, including the extent of customer involvement, their expressed levels of satisfaction, and the type of responses they receive. Additionally, market compliance reporting also examines a company's purchasing policies, their impact on society, and whether or not they prioritize regional vendors. These various factors are all essential components of evaluating a company's market compliance, and their inclusion in market reporting can help provide a comprehensive assessment of a company's ethical practices and contribution to the broader business ecosystem.

Community participation is a crucial aspect of CSR, and it encompasses a wide range of behaviors and actions. These may include charity endeavors, community projects, sponsorships, and other corporate activities aimed at positively engaging with local communities. In some instances, companies may also offer training and internships to members of the community as part of their commitment to building stronger, more sustainable relationships. However, the most effective community participation initiatives often involve significant financial investments from companies, which can have a far-reaching impact on the surrounding area and, indeed, the wider business ecosystem. The ultimate goal of community participation is to create a positive and lasting impact on the neighborhood and beyond, thereby promoting greater economic and social sustainability in the areas where companies operate. As such, this aspect of CSR is becoming increasingly important, with companies recognizing the value of engaging with communities in a meaningful and impactful way as a core component of their business strategy.

Mandatory ESG reporting is becoming increasingly common globally, and the MENA region is no exception. As stakeholders become more aware of the importance of ESG issues, there will likely be a growing demand for companies to report on their ESG performance. This will require companies to have robust ESG frameworks in place, including credible climate transition plans, to meet stakeholder expectations and regulatory requirements. 

While mandatory reporting is a critical step in addressing ESG issues, it may not be sufficient to drive real change and effective climate action plans. Companies must take ownership of their ESG performance and integrate it into their core business strategies to ensure long-term sustainability. This requires strong leadership commitment, adequate resources, and a culture that prioritizes sustainability as a fundamental value. In addition, companies must go beyond merely meeting regulatory requirements and aim to exceed them by setting ambitious sustainability goals and establishing a clear roadmap for achieving them. They must also foster collaboration and partnerships with other stakeholders, including customers, suppliers, and local communities, to drive collective action and promote a shared vision of sustainability. 

Ultimately, companies that take a proactive and strategic approach to ESG performance are better positioned to achieve long-term success, build strong relationships with stakeholders, and contribute to a more sustainable and equitable future.
As the ESG movement spreads across the globe, we are witnessing varied degrees of advancement and achievement. There is a prevalent perception that certain businesses are far ahead of others, while others are struggling to catch up. The MENA is a mixture of both, as are most regions. 

The term "sustainability" has transcended its buzzword status and is now recognized as a critical opportunity for businesses to develop fresh, more sophisticated growth strategies. The global capital access landscape is increasingly being shaped by ESG considerations, and companies that prioritize sustainability will have a competitive edge in accessing international markets. In the MENA region, like many other regions worldwide, the business appeal of ESG is becoming more apparent. However, the challenge for businesses now lies in effectively implementing ESG strategies across their operations, supply chains, and value chains. This requires a comprehensive and integrated approach that goes beyond mere compliance and incorporates a deep commitment to sustainability principles. Businesses that successfully integrate ESG into their core strategies and operations stand to reap numerous benefits, including enhanced brand reputation, improved financial performance, and stronger relationships with stakeholders. Moreover, they will play a crucial role in promoting a more sustainable and equitable future, one that recognizes the importance of balancing economic growth with social and environmental responsibility.

This article was originally written for ESG Mena, and formed a larger piece which can be read here: Unveiling the Green Facade: Comparing FTSE100s and MENA's progress in climate transition planning.