and David Tabit* CLIMATE change has begun to affect business, with extreme weather conditions threatening company assets and supply chains. As the environment evolves, companies that improve their energy efficiency will survive and companies that are slow to change will struggle. Recognizing this change, the United Arab Emirates (UAE) announced its plans to generate 24 percent of its electricity from renewable sources by 2021 at the CPO21 United Nations Climate Change conference a few years ago. The global financial services community is also keenly aware of climate change, and many professional money managers are now looking for ways to integrate environmental, social and governance (ESG) data into their investment approach to better manage risk and find opportunities in a changing world. Therefore, it is no surprise that there have been positive developments in the Middle East with regards to ESG integration. Though ESG principles are still in the early phases of adoption, ESG issues around climate change and their impact on water scarcity, corporate governance and labor practices have already been identified by investors and regulators. At the Abu Dhabi Sustainable Finance Forum earlier this year, the Abu Dhabi Financial Services Regulatory Authority (FSRA) announced plans to introduce financial disclosures standards for ESG criteria for relevant entities at Abu Dhabi Global Market (ADGM). Similarly, at the same forum, the Abu Dhabi Securities Exchange (ADX) said that it had joined United Nations Sustainable Stock Exchanges (SSE); a platform for exchanges to collaborate with investors, regulators and firms to improve ESG performance. A 2019 report by CFA Institute revealed that Middle East regulators focus on environmental issues when it comes to ESG considerations. The report pointed out that this might be due to government initiatives such as the UAE Strategy 2050 and Saudi Vision 2030, which recognize the need to avoid risks associated with climate change, as the region is particularly vulnerable given its water scarcity and aridity. At the Saudi Water Forum earlier this year, Saudi Arabia's Minister of Environment, Water and Agriculture Abdulrahman Al-Fadhli launched an ambitious water conservation plan named Qatrah ("Droplet"). With Saudi Arabia being one of the world's driest countries and the third largest water consumer per capita, this initiative aims to reduce water consumption by nearly 24 percent by next year and approximately 43 percent by 2030. Similarly, the UAE. Energy Strategy 2050 will see the country invest AED 600 billion until 2050 to meet the growing domestic energy demand while also ensuring sustainable economic growth. The Dubai Clean Energy Strategy 2050, launched by Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, seeks to make Dubai the city with the lowest carbon footprint in the world by 2050. It will see Dubai generate 7% of its total power output from clean energy by 2020, 25% by 2030 and 75% by 2050. These developments in recent years are acting as catalysts for both public and private sector entities in the Middle East to create sustainable energy sources and adopt ESG principles. CFA Institute's report highlighted that the region's increasing exposure to international investors has resulted in greater demand for ESG data. This in turn has contributed to awareness of ESG principles and its integration across the investment chain to meet demands from foreign clients. However, according to the report, despite the awareness and progress in the Middle East regulatory environment to improve corporate governance and transparency requirements, the region is yet to witness substantial improvements in terms of ESG Businesses reporting their own ESG performance metrics are trying to satisfy increasing investor and stakeholder demand for more and better data. Meeting this demand is especially challenging given the plethora of reporting platforms and requirements and lack of consistent reporting standards. As a result, different data points may be reported across companies in the same sector, and by the same company from one year to the next. Investors face the challenge of how to evaluate more company-generated data, including a wider array of sustainability reports, documents, filings and websites. Some data vendors, such as Bloomberg, fill this gap by providing investors with access to high-quality ESG data in a format designed for easy integration into the investment process. A growing number of investors are coming to realize the positive correlation between sustainability and financial performance. However, looking at current ESG data may only lead to more confusion. Either investors are overwhelmed by the mountain of unstructured data, or they are drawn to contradictory third-party ESG scores. As the ESG marketplace grows and expands, forward-thinking investors want to take a more sophisticated approach, while those new to the space are wary of greenwashing. For sustainable investing to continue to grow, all parties need to work together to improve the quality, quantity and accessibility of ESG data, an important issue to address as the Middle East continues to attract capital from the global market. * The writers are Global Head of Enterprise Data Content and Global Head of Equity Data, respectively, at Bloomberg LP
