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Corporates in the Middle East are looking at ESG transformation. And this is vital for it to work

Social and environmental aspects can only flourish in a climate of good governance. So why is the governance element of ESG often downplayed?

Corporates in the Middle East are looking at ESG transformation. And this is vital for it to work
[Source photo: Anvita Gupta/Fast Company Middle East]

The Middle East had lagged in social, and governance (ESG) investment and perhaps faced a credibility crisis, but the trend is changing. A recent PWC report confirmed this, adding that companies’ top three sustainability priorities are diversity and equality, climate change, and safety. 

However, there’s a debate about whether ESG’s growth has produced meaningful social or environmental benefits. Is there greenwashing?

Experts say governance, the most powerful element, needs closer attention. 

In most cases, governance is dictated by shareholders who make strategic decisions and seek to maximize their returns while embracing environmental and social benefits.
And, at most, experts say, this produces incremental changes and doesn’t contribute to resolving major problems. 

“To make ESG impactful, there’s a need for a governance revolution — a significant shift in the way companies and investors approach and prioritize governance to establish sustainable business models,” says Dr. Ioannis Ioannou, professor and advisor on sustainability and CSR, London Business School.


Accusations of greenwashing have long plagued ESG investments and funding. “The days of businesses thinking solely in terms of revenue are over. Now more than ever, companies and cooperates need to be aware of their environmental, societal, and governmental impact,” says Neeshad Shafi, executive director at the Arab Youth Climate Movement Qatar and climate activist. “A failure in governance will result in mismanagements and may lead to scandals that have dire consequences for the businesses.”

Take the example of the high-profile Volkswagen Dieselgate scandal. And this is one of many cases where governance is lacking. Last year, the asset management sector was alerted by the police raid on Deutsche Bank’s DWS over ESG greenwashing claims. 

“Companies that have limited understanding of the positive impact of embracing sustainability on corporate performance and are hesitant to commit tend to ignore governance. It also leads to greenwashing, where they only care to attract investors and ignore transparency and governance,” adds Shafi.

Experts say governance is more than just compliance; it also refers to how a business is conducted and how decisions are made regarding the environment, stakeholders, and the company’s long-term viability.

For example, Dr. Ioannou explains a company that has a strong governance structure is more likely to have clear policies to address any potential environmental or social risks and is transparent about its performance in these areas, especially towards its stakeholders.

“This can lead to increased stakeholder trust and support, which can positively impact the company’s bottom line by enhancing its social license to operate and strengthening the brand and reputation,” he adds.


Social and environmental aspects can only flourish in a climate of good governance. “Good governance is important for enabling social and environmental impact to grow. It provides the structure and accountability necessary to ensure that a company or organization operates responsibly and sustainably,” says Gloria Botero, senior ESG consultant at WSP, Middle East. 

“To make ESG more impactful, it is important for companies and organizations to prioritize good governance and to strive to improve their governance practices continuously,” adds Botero.

And this may involve implementing more robust internal accountability measures, establishing clear policies and procedures for decision-making, and ensuring that the company is transparent and responsive to the needs of its stakeholder.

To promote governance within the ESG framework, UAE has launched initiatives. These include creating rules governing the moral use of enabling technology, outsourcing, and the requirement of female board presence for publicly traded corporations. The Saudi Exchange also introduced its ESG guidelines in 2021.

According to Dr. Ioannou, one specific change that could make ESG more impactful is developing more robust and standardized governance metrics and reporting frameworks. 

“This would allow for more accurate and consistent comparison of practices across companies and industries, making it easier for investors to make better-informed decisions. It would also help to ensure that the company is transparent and accountable to its multiple and diverse stakeholders.”


In light of the upcoming UN climate summit in the UAE in November, experts say ESG-related updates and governance will become much more prominent and relevant in keeping with global trends. 

This also draws attention to local solutions to the conflict between environmental protection and fossil fuel demands.

 “The transition to a net zero carbon emissions world will reward firms and investors in the region and will be driven by businesses and investors who see the advantages of getting ahead. The private sector leadership will give policymakers the confidence to raise national targets and set enabling policies, which then allow businesses, investors, and local governments to go further again,” says Shafi.

“The results will drive towards a net zero world in the Middle East. This will give a chance to put pressure on countries that are currently lagging.”

For the Middle East to be sustainable and prosperous in the long run, it is important to solve the region’s environmental and social problems.

For instance, Botero explains that water management and conservation are important ESG factors in the Middle East because it has some of the world’s driest and least water-rich regions. 

“Companies and governments in the Middle East must aim to reduce their environmental impact and make sure they are using natural resources responsibly by giving ESG problems top priority,” Botero says. 

She adds that it is crucial for businesses and organizations to constantly review and enhance their governance procedures to make sure they are conducting their operations sustainably and responsibly. 

“By doing this, they may contribute to developing stakeholder credibility and trust and  creating a more just and sustainable society.”

Even though it is crucial, governance is typically the most overlooked. Experts say this may be due to the difficulty in measuring and quantifying governance performance and the fact that issues associated with governance are often seen as “soft” problems that are less tangible than environmental or social ones. 

However, as the importance of ESG is acknowledged— a recent survey found 58% of Middle Eastern businesses believe it improves a company’s brand and reputation — will governance get greater attention?

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