Businesses should embrace ESG as driver rather than a compliance tick box

As environmental, social and governance reporting moves into the mainstream, organisations should move away from viewing it as simply a compliance requirement and embrace it as a business growth driver.  That was the view of speakers at a recent ESG expert discussion jointly led by ICAEW and PwC Middle East. 

According to PwC, 55% of publicly listed companies worldwide are committing to voluntary ESG disclosures, with 78% of Middle East businesses indicating that they would welcome increased ESG regulation, believing it will strengthen and accelerate their organisation’s ESG strategy. As consumers and investors become more environmentally and socially conscious, ESG reporting presents an opportunity to reframe internal sustainability agendas into growth engines.

ESG is the evaluation of risks to the enterprise value of an organisation with specific focus on environmental, social and governance factors such as having a circular approach to waste, localising your supply chains, pledging a commitment to transparent reporting and a focus on diversity and inclusion in the workplace. Its importance among key business stakeholders is growing, as ESG becomes an essential means of safeguarding businesses against future risks. The speakers highlighted the climate crisis, investor interest in non-financial performance and new business opportunities as the key drivers behind its growing popularity.

The experts leading the ESG discussion were:

• Richard Spencer, Sustainability Director, ICAEW
• Azzah Fawzi, Partner – Assurance, Risk, ESG Reporting Leader, PwC Middle East
• Rashid Khursheed, Partner – Assurance, Dubai, PwC Middle East
• Alaisha Dossa, Director – Assurance, PwC Middle East

They emphasised that most companies are still in the compliance stage of the ESG framework, due in part to the complexity and ongoing development of ESG reporting standards. Yet for the true benefits of ESG to be realised, organisations need to incorporate the practice into their business strategies. Amid heightening climate and social challenges, governments are acting to instigate change through regulation, consumers are becoming more environmentally and socially conscious and investors are responding to a shifting market landscape. The short-term cost required to adopt an ESG-friendly strategy will be mitigated by the medium and long-term opportunities.

In the Middle East, the UAE, Jordan and Egypt are the only three countries to mandate ESG reporting for listed companies. While the true impact lies in the type of information required to be disclosed, it is expected that policies will become more stringent as the region plays catch-up to the rest of the world. However, the experts maintained there is still work to be done – both around the world and in the region.

Governments in the region are steadily developing ESG agendas, and with the UAE set to host COP28 next year, attention will  be drawn to the nation’s growing environmental policies, which include a $50 billion investment by the UAE government to support its net-zero transition.

Richard Spencer, Sustainability Director, ICAEW, said, “ESG is becoming an increasingly popular topic, although it is still mistakenly conflated with sustainability. While the two share similar outcomes, the contexts are different; ESG is used by businesses to identify risk, whereas sustainability looks at the impact a business has on the environment and society. Understanding the risks posed through environmental, social and governance challenges will potentially reframe the necessity of transformation, in turn driving sustainable business practice.”

Azzah Fawzi, Partner – Assurance, Business, Controls, Risk, PwC Middle East, said, “Accounting and assurance has a key role to play in the successful implementation of ESG, especially in the region. Accurate reporting and transparency underpin ESG and it is chartered accountants who will be at the heart of this. Expert guidance will become especially important as climate challenges and social issues worsen, causing uncertainty and increased government intervention. Adapting business policy and procedure, as well as identifying future challenges will be critical for safeguarding business in the medium-to-long term.”

The speakers all agreed that a healthy business is a steward of the planet and society, and it is the new generation of leaders, investors and consumers that are driving this expectation. ICAEW was the first major professional organisation to become carbon neutral, understanding the value this has not only for the planet but also for business.

The event was held at PwC’s office in Emaar Square in Dubai and attended by ICAEW members and senior business representatives from PwC Middle East.