BCCD Green

ESG the global context 

Ten years ago, the field was dominated by proposed voluntary codes and sustainability reports. Companies would publish positive commitments, but achievements were difficult to track, and comparability between companies was challenging. At this time, much of ESG was focused on marketing rather than strategy, and this led to accusations of “greenwashing” where there was a disparity between measurable reality and company commitments. That began to change around 2015, when the Paris Agreement brought a clear and measurable focus for countering climate risk, and when financial regulators and investors began to ask, “should companies disclose their climate risk?”, leading to the question “how could they disclose in a way that investors can rely upon?”

Following this there has been very rapid development. The Task Force on Climate-Related Financial Disclosures (TCFD), was launched in 2017. With this climate change became a material risk for companies, which could develop into impacts causing altered valuations. Then researchers then began demonstrating that ESG performance is commonly positively correlated with long-term financial resilience. This was highly significant. Once ESG could be justified in terms of risk-adjusted returns, it was no longer a distraction but a company’s duty to its shareholders.

By the early 2020s, the perceived value of ESG was such that governments started converting these positive practices into regulation. Europe led the way with the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy, producing a reclassification of financial products. The International Sustainability Standards Board (ISSB), launched in 2021. Its first standard, published in 2023, provided a global baseline for sustainability reporting. This solidified a credible architecture of disclosure, assurance, and comparability between different entities. This creating a reliable and auditable structure.

However, not all developments have been positive. In the USA there has been significant political resistance and private litigation against climate related regulation. “anti-ESG” is even starting to be seen as a positive in some states. While counterintuitive given the history of ESG, this is also interesting. ESG has evolved from optional and unimportant to noteworthy and politically interesting. This alone is an indication of the broad impacts on the future of energy, labour, and society that ESG can have. Thus, these are subjects worthy of extensive discussion and debate.

ESG in the Middle East 

Within this global context, the story of ESG in the Middle East is especially interesting. Not that long ago ESG could be largely equated with philanthropic activity. But in the present day there are indications of its institutionalisation. Both Dubai and Abu Dhabi’s growing stock exchanges have introduced ESG disclosure guidelines, carbon credit platforms are being launched and tested, and providers of climate finance are developing within the region. This same trend is also seen in Saudi Arabia which has sponsored large-scale carbon credit auctions and is building the infrastructure for a regional carbon market. Much of this activity can be traced to COP28 in Dubai, the second COP meeting on the Arabian Peninsular after COP18 in Doha. 

The Gulf States see the financial potential opportunities of the new sustainable world, including maintaining the viability of hydrocarbon exports in the short term by reducing their carbon emissions through methane reduction, and carbon capture technologies. But also supporting the development new technologies such as green hydrogen, which promises both climate mitigation and while maintaining the energy export potential of the Middle East. Here in Dubai, I have been leading research projects in green hydrogen supporting this regional aspiration.

For this reason, the UAE and the broader middle east is going through a very rapid transition to carbon neutrality and focusing on the commercial opportunities opening in new sustainable technologies. 

The Future of ESG

I believe that ESG as a term will become less used in the future. In the past ESG was a niche area, but now it encompasses so many things, and I believe these will ultimately become their own specialisms. This will be particularly important as companies release specific transition plans and start resourcing them. Or when they start formally measuring and auditing their carbon footprints, even responsible technology decisions could become a technical ESG subfield. 

While ESG has seen significant growth and development, the next phase will determine whether it can also deliver tangible environmental and social outcomes at scale, and that, of course, will be the true test.

Author: Dr Stephen Wilkinson FGS FCIHT FHEA ARSM DIC Director of Research, University of Wollongong in Dubai and Vice Chair of the Chartered Institution of Highways and Transportation, Dubai.