Financial services firms' decisions on investment and credit provision are pivotal to the global sustainability push. This is why regulators are imposing stringent environmental, social, and governance (ESG) data collection and disclosure mandates on financial institutions (FIs). A recent study indicates that sustainable firms may attract more capital on better terms than their unsustainable counterparts. The London Institute of Banking & Finance Mena's report, 'Sustainability reporting for banks: the climb starts here,' highlights that despite the daunting task of gathering numerous data points for sustainability reporting, the fundamental business operations of all firms are set to transform. The white paper, authored by Emmanuel Rondeau and Rutang Thanawalla, emphasizes that ESG reporting is not just beneficial but will soon be a business necessity akin to financial reporting.
The landscape of sustainability reporting is currently fragmented, with various jurisdictions adopting different standards and timelines. Firms operating across multiple jurisdictions must produce a variety of sustainability reports to meet these diverse requirements. Given the natural overlap between the value chains of FIs and corporates, enhancing the quality of sustainability reporting through accurate data collection presents a significant challenge. In the Middle East and North Africa (Mena) region, sustainability has come under regulatory scrutiny following two consecutive COP summits. EY research shows that while most banks in Mena have adopted ESG strategies, few have implemented ESG KPIs.
Regulatory frameworks include various ESG guidelines, metrics, and disclosure requirements. In an effort towards standardization, the GCC Exchanges Committee introduced voluntary Unified ESG Metrics for GCC listed companies in January 2023, which do not replace existing mandatory guidelines. Mandatory ESG reporting rules in Mena include those by the UAE's Securities and Commodities Authority (SCA), requiring annual sustainability reports since 2020, and Abu Dhabi Global Market’s (ADGM) ESG disclosures framework, effective from June 2023, aiming to foster sustainable finance and the green economy in the UAE.
All GCC regulators are currently reviewing or setting their ESG reporting requirements, with the Global Reporting Initiative (GRI) standards being the most widely followed in the region, updated in 2023. The GCC Exchanges Committee ESG metrics align with these GRI rules. Two key questions for Mena firms are whether the ADGM approach will be adopted regionally and which globally recognized disclosure standard to select. Effective ESG reporting is crucial for risk management, providing FIs with insights into client and value chain responses to environmental and social changes. AI-based solutions are being utilized for comprehensive, integrated, and automated sustainability management, enhancing cost efficiencies and enabling structured stakeholder dialogues on environmental and social impacts.
The white paper advises FIs to develop a strategy for efficient multi-jurisdiction ESG reporting, noting the need to engage with peers and industry bodies to identify best practices and avoid duplication of effort, as regulatory convergence may take time.
