Module 3 of the HSBC Sustainable Business accelerator explored “key focus areas when building an ESG strategy.” The aim of the session was to understand the Environmental, Social, or Governance (ESG) reporting framework landscape in the Middle East, North Africa, and Turkey (MENAT) region and globally, while identifying key ESG goals, and relevant metrics for businesses.
The Foundation of an ESG Strategy: Commitments, Goals, and Metrics
In today’s rapidly evolving business landscape, companies are under increasing pressure to demonstrate their commitment to Environmental, Social, and Governance (ESG) principles. ESG considerations have moved beyond corporate social responsibility (CSR) to become integral components of a company’s overall strategy. ESG Commitments, Goals, and Metrics are the backbone of a well-defined sustainability strategy. ESG Commitments are a company’s long-term promises, echoing dedication to ESG responsibilities, such as “tackling climate change” or “achieving carbon neutrality.” While commitments set the direction, ESG Goals provide the roadmap, ensuring alignment with stakeholder expectations – they are specific, measurable, and time-bound objectives. For example, a goal might be to reduce greenhouse gas (GHG) emissions by 15% over the next 15 years. Materiality assessments and stakeholder engagement create a strong foundation for SMART (Specific, Measurable, Achievable, Relevant, and Time-bound) ESG Goals. A SMART goal could be to “strengthen ESG oversight and accountability by linking 30% incentive plan to ESG performance by 2025.” Finally, what are ESG Metrics? They provide data-driven evidence of a company’s performance against its ESG objectives. Metrics are typically defined in ESG reporting frameworks.
What is ESG Reporting?
Corporate reporting has evolved from focusing on financial statements in the 1960s to comprehensive sustainability reporting in the 2020s. The strong interest from the investment community and the development of specific reporting metrics, principles, and frameworks define the new era of ESG reporting. Today, it is all about Specific, Measurable, and Regulated disclosures that showcase an organization’s ESG performance. We’re no longer talking about “doing good” – we’re tackling head-on issues like reducing GHG emissions and fostering board diversity. With comprehensive tools at our disposal, ESG progress is Measurable. ESG reporting will no longer be an option – it’s Regulated by governments and stock exchanges mandating it to define a well-obligated path to sustainability. The new era of ESG reporting demands precision, accountability, and action.
Navigating the Landscape of ESG Reporting: Outward versus Inward Materiality Outlook
ESG reporting frameworks standardize ESG metrics disclosure, providing structured, specific, and industry-relevant guidelines. They encompass regulations, reporting standards, certifications, protocols, and guidelines, helping organizations speak a common language – a famous example includes the United Nations Sustainable Development Goals (SDGs). Two main categories of ESG frameworks include those focusing on a company’s impact on the world (outward materiality outlook) and those concentrating on the world’s impact on the company (inward materiality outlook with financial material information). The Global Reporting Initiative (GRI) standards help businesses, governments, and other organizations report on their impact globally, embraced worldwide for comprehensive sustainability reporting. On the other hand, the International Sustainability Standards Board (ISSB), run by the International Financial Reporting Standards (IFRS) Foundation, harmonizes financial-centric ESG reporting, often used for investor-centric reports.
Widely embraced globally, the GRI led the charge by publishing the first global framework for sustainability reporting in the early 2000s. These standards aim to resonate with the general public, including customers, employees, and business partners. They encompass universal, topic- and sector-specific disclosures, best used collectively to craft sustainability reports that address ESG issues where the organization wields the most profound influence. For example, disclosure 305-1 requires organizations to report on direct (scope 1) GHG emissions emitted in metric tons of CO2 equivalent (e.g., GHG emissions from running the facilities). The GRI standards are a testament to the understanding that holistic sustainability reporting is key to fostering socio-economic and environmental cohesion.
The ISSB, which includes, or will include, globally recognized standards such as the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-Related Financial Disclosures (TCFD),1 help businesses identify, manage and report on the sustainability topics and issues that matter most to their investors and that affect their financial/operational performance. They are often used for investor-centric reports, developed specifically to address investor concerns, or respond to investor demands for ESG performance data. Similar to GRI standards, SASB requires companies to report on their gross global scope 1 emissions; however, SASB requires companies to also report on the percentage covered under emissions-limiting regulations – identifying the impact on the companies’ bottom line.
ESG on the Rise: Regulatory Trends in the Middle East, North Africa and Turkey (MENAT)
While mandatory reporting is still in its infancy, the pressure is mounting, especially in the UAE, driven primarily by national stock exchanges. Companies increasingly turn to the GRI standards to navigate these evolving regulatory waters. The UAE, a prominent financial hub, has already made ESG reporting mandatory for public joint stock companies listed on the Abu Dhabi Securities Exchange (ADX) or Dubai Financial Market (DFM), with further requirements on the horizon. As the UAE sets its sights on achieving net zero by 2050, the importance of ESG data for investors and stakeholders is unmistakable. Initiatives like the UAE Sustainable Finance Working Group’s Sustainability Finance Taxonomy are underway, signaling a solid commitment to enhancing sustainability disclosures and corporate governance. This regulatory wave isn’t confined to the UAE alone; stock exchanges across the region, from Bahrain to Turkey, are issuing ESG reporting guidelines, with Saudi Arabia and the UAE leading the global charge with a remarkable +29% and +21% growth in GRI adoption since 2020, setting a clear trajectory for heightened ESG reporting in the MENAT region.
A Strategic Decision: How to Choose the Right Framework?
Selecting the proper ESG reporting framework requires understanding your reporting requirements, regulations, stakeholder expectations, and sector-specific practices. It’s a journey of aligning with what you must do, what you should do, and what you could do to ensure a sustainable future. In this age of heightened ESG awareness, organizations must embrace these commitments, goals, metrics, and reporting standards as the compass that guides them toward a more sustainable and responsible future. By doing so, they meet stakeholder expectations and pave the way for a world where businesses thrive in harmony with the planet and society.
For more information on reporting frameworks and to help select which is the right framework for your organisation please arrange a 1-2-1 session with Diginex who can help you understand the frameworks that suit your organisation’s objectives better.
To watch a full replay of the session please visit the Diginex portal
