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Men in Suits

ESG is a significant opportunity for the finance industry

Environmental, social, and governance (ESG) issues will impact businesses over the next decade, possibly driving them to modify their business models as the globe seeks to reduce fossil fuel emissions.

Banks and other financial organisations will benefit from the widespread investment. ESG, on the other hand, provides risk and uncertainty for banks that are ill-prepared or are not completely aware.

ESG is a component of financial strategy

ESG has been around for a long, but it has only recently taken centre stage in the development of company strategy.

There are various causes for this, including:

  • As a result of widespread data collection, the world has come to accept the reality of climate change.

  • In every major economy, social issues have dominated political landscapes.

  • The COVID-19 epidemic and supply chain difficulties have widened the wealth disparity in several countries.

According to a PwC 2021 poll, 92% of business leaders in Brazil, India, Germany, the United Kingdom, and the United States agree that ESG practices are critical to a company's survival. That doesn't even begin to address the number of clients and workers who feel the same way, which could explain why 87% of business leaders consider ESG performance improvements as a key strategic strategy for their organisations.

The Middle Eastern Banks' Case

Middle Eastern banks typically trail behind European banks in terms of ESG initiatives, although global awareness and investment levels are shifting. Banks in the Middle East issued 50% more sustainable and green bonds between 2019 and 2020.

  • The Saudi Electricity Company (SEC) released the country's first green Sukuk (Islamic law-compliant bond) in international markets.

  • The ESG index was launched by the Dubai Financial Market.

  • Egypt sold $750 million in green bonds.

  • One-third of GCC (Gulf Cooperation Council) banks now publish an ESG (Environmental, Social, and Governance) report showcasing sustainability activities. This represented a huge improvement from five years earlier when none of those banks published a comment.

GCC banks must evolve

ESG evolution and innovation continue apace, but they emphasise the significance of immediately embracing new advancements.

Despite their growth, GCC banks face a difficult scenario. For far too long, their home countries have relied heavily on fossil fuels, which the rest of the globe hopes to phase out within a few decades. As a result, GGC banks must accelerate and intensify their ESG initiatives.

The government in this region has already diversified its activities and investments, but a strategic approach is becoming even more important. Understanding ESG initiatives is no longer sufficient. Banks and the companies in which they invest must improve their understanding in order to remain relevant and lucrative in the future.

Bank reporting in the GCC

ESG reporting or a simple knowledge base is no longer sufficient.

Now is the time for GCC banks to incorporate ESG into their overall investment strategy. Companies and banks are transforming their business models with new strategic approaches aimed at making them more sustainable.

GCC banks will need to take action as ESG measures become more important around the world. They must preserve their competitive edge by responding to and staying ahead of stakeholders' expectations.

Banks face the same challenge as any other company: when they become stagnant and unable to evolve, they lose their competitive advantage and business.

Our Directors’ Institute- World council of Directors can help you accelerate your board journey by training you on your roles and responsibilities to be carried out in an efficient manner helping you to make a significant contribution to the board and raise corporate governance standards within the organization.

Our ESG Expert certification will help you to amplify your understanding of corporate governance in a detailed manner paving a way for you to become a globally recognized ESG leader.

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