Accelerating ESG: a shared and competitive advantage

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Evidence is mounting that companies’ performance regarding environmental, social, and governance (ESG) factors contribute to business success, and the speed at which those factors become material to any business is increasing.

However, the current economic headwinds and the ongoing stress of Covid 19, may result in the curtailment of ambitious sustainability spending (everywhere) for the remainder of 2020.

1998-2018 Market Environmentalism

1998-2018 Market Environmentalism

2019… First, Greta, then COVID

2019… First, Greta, then COVID

2020… Can ESG be the solution?

2020… Can ESG be the solution?

Illustrations: Duncan Austin, “The History of the Environmental Movement!”, Medium, April 2020.

Companies, and a vast array of stakeholders, most importantly investors, are already getting on board in the search for strategic sustainability integration and reporting, and ESG is proving to be the new platform or lingua franca within which this dialogue and engagement is successfully taking place.

The terms ESG and Corporate Social Responsibility (CSR) / Sustainability are used interchangeably. But they are not the same thing. When it comes to disclosing and bench-marking data, there’s actually a difference.

CSR focuses on corporate image, broad public philanthropy and building a “do good” edge for a company.

Sustainability is a blanket or a catch-all term for a company’s efforts to “do better” by stakeholders. It has also matured CSR to the point where many companies have an executive at management level, collect and report on their performance and in some cases even have an entire department devoted to Sustainability.

While ESG takes the next step of and balances the same principles of both CSR and Sustainability with an increase on investor needs, good governance and spotlights a set of criteria for asset or portfolio investments to evaluate a company’s environmental, social and governance performance.

The visual below outlines a high level “how” CSR and Sustainability can deliver ESG targets.

FIG 1. Share of population with access to electricity in 2018

FIG 1. Share of population with access to electricity in 2018

The transition from CSR to Sustainability to ESG indicates a maturation from practices to reporting on how ESG performance can be linked to strategy, financial performance and valuation. It assists in communicating how a company is addressing some of the world’s most pressing challenges – poverty, education, climate change and biodiversity. Addressing these challenges can promote prosperous economic systems that create more stable and resilient markets within which companies can operate.

An outline of how a company can start on the ESG Continuum is briefly summarised below.

National Association of Corporate Directors (NACD) 6th Ed of Governance Challenges 2017: Board Oversight of ESG.

National Association of Corporate Directors (NACD) 6th Ed of Governance Challenges 2017: Board Oversight of ESG.


ESG’s scope, practices, and relevance to capital focussed opportunities (investments) have led to a substantial shift in the way companies measure and disclose their sustainability performance. It provides a new perspective to potential hidden risks that lie beyond those of balance sheets and financial ratios

Increasingly, companies are expected to have high quality, accurate data suitable for both reporting and investment decisions. Data that is timely, accurate, complete, and auditable manner. With this development, the question is “Can we collect ESG data?” but rather “How trustworthy is the data that we are collecting?”. Companies and investors have already begun to coalesce around two key ESG reporting frameworks: Sustainability Accounting Standards Board (SASB) and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). However, there is a growing number of voluntary disclosures which include indexes, standards and guidelines.

Before selecting any of these ESG disclosures for reporting, the following are some basic questions that can help companies get started with defining their ESG risks, opportunities and lay the foundation for effective ESG integration and reporting:

  • How is the company looking at how their current practices in relation to ESG?
  • What is the status of the company’s current sustainability or ESG reporting efforts? Are those efforts adequate given reporting by competitors?
  • How much investor ESG-related communications and how many requests for additional ESG data is the company receiving?
  • How has the company engaged with relevant investors to understand their concerns?
  • What kind of investors would the company like to have?
  • How efficient is the process to obtain ESG data, and is there an opportunity to streamline it?
  • Should the company adopt one or more recognized ESG reporting frameworks or standards?

Some ESG reporting and disclosures are thriving in the post COVID-19 era.

In the GCC the recent participation of Stock Exchanges can be seen as a catalyst for change by increasing and improving ESG reporting for listed companies.

In July 2019 the Abu Dhabi Securities Exchange (ADX) issued new guidelines for listed companies on ESG disclosure, as part of its strategy to promote sustainability in the financial markets. The set of 31 key performance indicators promote economic growth and encourage businesses to adopt socially sustainable practices. The guidelines also raise the standard of governance by putting sustainability standards into practice and integrating them into the strategy adopted by listed companies. The ESG Disclosure Guidance stems from ADX’s membership in the Sustainability Group, an initiative of the industry body World Federation of Exchanges.

In April 2020 the Dubai Financial Market PJSC launched a new index that measures the commitment of listed companies toward implementing ESG policies. Known as the UAE Index for ESG, it was developed in cooperation with S&P Dow Jones Indices and the United Arab Emirates’ Hawkamah Institute for Corporate Governance, and comprises of 20 companies. It will be reconstituted once a year in November and will automatically include the top 20 stocks and benchmark indicators to evaluate companies’ compliance with ESG principles.

Bahrain Stock Exchange followed in June 2020 by releasing Exchange in Focus: Bahrain ESG Reporting Guidelines. This guidance encourages listed companies to disclose a set of 32 ESG metrics and indicators in alignment with the recommendations of the 54-member UN Sustainable Stock Exchanges initiative (member since February 2019), Global Reporting Initiative, and the United Nations Sustainable Development Goals. The guideline explains the key regional and international drivers for adoption of ESG reporting, the importance of ESG reporting, the ways to report on ESG, and how Bahrain’s Stock Exchange promotes sustainability.

As these GGC ESG Indexes continue to mature, so will the role of ESG in securing the longevity of the region’s transformation. GCC government initiatives can provide crucial top-down support for ESG disclosure adoption, enabling the GCC business ecosystem to adapt and transform towards a more sustainable future. Government-related initiatives can also help prepare the ground for companies. But challenges remain throughout the GCC on how to employ a full scale ESG integration, one that looks  beyond outdated CSR initiatives and generic sustainability reporting as benchmarks of success.

Environmental, Social, and Governance (ESG) performance is found to positively correlate with companies’ financial performance according to a McKinsey & Company study. Source: B20SaudiArabia

Environmental, Social, and Governance (ESG) performance is found to positively correlate with companies’ financial performance according to a McKinsey & Company study. Source: B20SaudiArabia

So, what next?

There is an old saying, “Don’t cut your nose off despite your face”, and it can easily relate to the current or shared global ESG situation. From inception, through to design, build, and disposal, ESG needs to be fully embedded into a company’s decision-making. Those that fail to integrate ESG into their practices face the risk of finding themselves obsolete in the future. ESG is here to stay and will be at the forefront of tackling and ensuring a sustainable future.

Now is the time to reflect on the importance of ESG and consider how data can be better collected, shared, and acted on to take advantage of emerging opportunities. Companies in the GCC should seize the opportunity to be leaders and reassess how they view the transition to ESG, and support the business case for high-quality ESG data collection and reporting, and not just high-profile initiatives, to enhance investor and stakeholder confidence – thus driving mutual benefit and value.

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Isobel O’Connell

As an award-winning sustainability leader, Isobel O’Connell focuses on the intersection of shared value and commercial sustainable development whilst contributing to national and international sustainability dialogues whether in corporate boardrooms, project rooms, lecture halls, or community town halls.

Currently she coaches clients on ESG strategy, data driven reporting, community investment and sustainability transformation management initiatives while interfacing on national and international policy dialogues.

Previously she has held leadership and successfully senior roles managing team performance and sustainability engagement both as an inhouse expert, consultant and trust advisor.

She is a frequent speaker and blogger for CSRWire and Triple Pundit. In 2020 she was appointed Research Fellow at Columbia’s University’s Center for the Study of Human Rights. She currently shares her time between her native Canada, and the UAE where she is an Assessor supporting the transformation of the UAE’s social service sector as an economic hub for the GCC region.