31 Asian Legal Business | November 2024 down 18 percent from the same period a year earlier, although this followed a relatively high COP28 halo effect, an S&P Global report found. To take off, sustainable bond issuance in the Middle East could require acceleration in implementing net-zero policies, despite government initiatives and increasing alignment with sustainability strategies, or even regulatory requirements. In the UAE, the financial sector has pledged to mobilise $272 billion in sustainable finance by 2030 as a key factor for issuances in the sector. Sullivan is also seeing an increase in investment funds that are compliant with sharia investment principles due to the commonality of ESG investing and sharia-compliant investing. “Investors following ESG and sharia-complaint strategies typically seek companies that have transparent decision-making processes, robust risk management practices, and strict adherence to ethical standards,” she explains. The integration of ESG into corporate governance frameworks is becoming more sophisticated, with almost half of surveyed companies by PwC either having a chief sustainability officer or planning to appoint one within the next year. These roles are increasingly comprehensive, with 90 percent of respondents indicating that sustainability leadership positions involve both strategy setting and oversight of monitoring and reporting. The scope of ESG integration is expanding beyond carbon reporting to include broader metrics such as biodiversity impact and water resource management. In Qatar, for instance, companies are placing particular emphasis on water as a critical resource, reflecting the region’s unique environmental challenges. Regulatory landscape The regulatory environment across the Middle East is rapidly evolving, with each major market developing its own framework while striving for regional harmony. The United Arab Emirates has emerged as a frontrunner, designating 2024 as its second consecutive “Year of Sustainability” and establishing the cross-jurisdictional Sustainable Finance Working Group (SFWG) to promote cohesive regulation. The Abu Dhabi Global Market’s implementation of its sustainable finance regulatory framework in July 2023 stands as one of the first comprehensive sustainable regulatory frameworks in the Middle East. This opt-in framework encompasses funds, discretionary managed portfolios, bonds, and sukuk, setting a new standard for ESG disclosure requirements in the UAE. The UAE’s commitment to sustainable finance is further evidenced by the Dubai Financial Services Authority’s decision to waive all regulatory fees for sustainability-related debt securities listings throughout 2024, encouraging greater participation in green financial instruments. The United Arab Emirates is also implementing ambitious national action plans like the UAE’s Net-Zero 2050 Strategy, and significant investments in renewable energy and green technology – for example, the Mohammed bin Rashid Al Maktoum Solar Park in Dubai and the Barakah Nuclear Energy Plant in Abu Dhabi. Saudi Arabia has made significant strides in its regulatory approach, with the Capital Market Authority’s ESG disclosure guidelines requiring listed companies to report on ESG-related information since 2019. The Saudi Stock Exchange (Tadawul) has further strengthened this commitment by launching an ESG index and partnering with the UN’s Sustainable Stock Exchanges Initiative. Saudi Arabia overtook the UAE as the largest issuer of sustainable sukuk in the first months of this year, compared to the same period in 2023, the S&P report found. In Oman, the regulatory landscape is evolving with the Muscat Stock Exchange’s introduction of ESG disclosure guidelines for public joint stock companies. The transition from voluntary reporting in 2023 to mandatory reporting in 2024 signals a clear commitment to transparency and standardisation. Challenges and opportunities While the progress is significant, the implementation of ESG strategies in the Middle East faces fundamental challenges, with organisations struggling to navigate the absence of regionspecific guidelines and best practices. This absence of standardisation makes it difficult for companies to produce consistent, comparable ESG disclosures that meet stakeholder expectations and regulatory requirements. The foundation of effective ESG reporting - robust data infrastructure - remains a significant hurdle. Middle Eastern companies struggle with limited access to standardised data, hindering accurate measurement and reporting of ESG performance. This challenge is compounded by the absence of unified metrics, creating a cycle where lack of standardisation impedes data collection, while insufficient data hampers the establishment of effective reporting frameworks. The talent gap in sustainability expertise is a pressing concern, with nearly 80 percent of organisations identifying knowledge of sustainability reporting and regulatory requirements as critical competencies. The region is addressing this through various initiatives, including training programs and international partnerships to build local expertise. The return on investment in sustainability initiatives remains a concern for some, with one in five executives expressing uncertainty about financial returns. However, consumer data shows 70 percent of respondents are willing to pay premiums for sustainable products. This growing market demand, coupled with regulatory pressure and climate imperatives, suggests the region’s ESG transformation will continue to accelerate. “As the Middle East grapples with climate change and resource scarcity, there’s an increasing recognition of the need for sustainable development. ESG investing offers solutions that align with these long-term goals,” Sullivan says. Middle East
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