A significant shift is transpiring in the Middle East, as companies of all sizes are making concrete moves to advance from the startup mode to a newer and more profound scale-up mode in sustainability.
In a recently published PwC survey on environmental, social and governance issues, over 60 percent of all the respondents told us that their companies have embedded ESG issues in their business strategies.
Saudi Arabia is no exception, as it looks to ramp up its efforts to boost sustainability, with companies increasingly looking to integrate environmental measures into their overall business strategy.
Saudi Arabian Oil Co., for example, now provides annual metrics on its environmental impact, including water consumption, hydrocarbon spillage and sulfur oxide emissions, besides details of its direct and indirect carbon emissions.
Saudi Arabia’s Basic Industries Corp., which also publishes detailed emissions data, has committed to making all its operations carbon neutral by 2050. It is now focuses on making its feedstock renewable and circular.
Meanwhile, the Saudi Stock Exchange has issued ESG disclosure guidelines to raise awareness.
In practice, that means the exchange is more consistently reporting on the environmental footprint of its listed companies as part of an intensifying regulatory push for transparency. Some companies have even gone beyond compliance to provide better clarity.
Many companies are anchoring new thoughts on sustainability into their organizational structures. Our survey noted the rise of the chief sustainability officer in the region, a new high-level position with specific responsibility for climate-related issues. More than one in four regional companies now have an individual leading that role.
Government policy is also contributing to the business momentum. Following up on its Vision 2030, published in 2016, the Kingdom of Saudi Arabia launched the Saudi Green Initiative in 2021.
This initiative seeks to unite environmental protection, energy transition and sustainability programs to offset emissions, increase the Kingdom’s use of clean energy, and address climate change.
As part of the program, the government has announced over 60 initiatives representing more than SR700 billion ($186.6 billion) in investment.
Despite these efforts, more can still be done to embed sustainability into corporate strategy. The oil, gas and petrochemicals sectors at the heart of the Saudi economy have a more challenging time adjusting to sustainability demands given the nature of their operations and output. But they are still embracing the new trends with growing enthusiasm and looking for ways to leverage their expertise to build a vibrant renewable energy industry that leverages the Kingdom’s abundant solar and wind resources.
Some critical gaps also need to be filled. One of the significant challenges across the Middle East and for Saudi companies is providing workers with the new skills they need to work in a more sustainability-focused industry.
In our survey, two in five respondents said the lack of internal skills and expertise to implement ESG initiatives in their companies was a key obstacle. While companies can do more to strengthen training programs, education systems also have an essential role in training a new generation of environmental engineers.
Finance is another area that needs to catch up for regional companies across the region. The last few years have seen a sharp increase in the issuance of green bonds and other sustainability-linked instruments globally. Indeed, in October 2022, the Kingdom’s sovereign wealth fund, the Public Investment Fund, listed a debut $3 billion green bond on the London Stock Exchange and followed up with a second large issuance early this year. Yet one of the survey’s findings was that companies in the region are not yet tapping into these innovative financial instruments as much as they could, and one-third of the respondents identified ESG funding constraints as a significant barrier.
The survey also highlighted demands on business and government leaders: respondents want the boards to spend more time on sustainability issues ahead of the UN climate change conference, also referred to as COP28, in Dubai this November.
They are looking to policymakers in the region to put policy frameworks similar to the Inflation Reduction Act and Green New Deal introduced in the US and Europe.
The momentum toward anchoring sustainability in operations and being transparent about it augurs well for Saudi companies as they move ahead on their ESG commitments. So, it is no longer about warming up in the starting blocks. They are on the track and picking speed.