by Scott Williams ,
ESG Coordinating Director, Marsh Middle East and Africa
31/01/2023 · 5-minute read
Environmental, social, and governance (ESG) issues represent a huge opportunity for businesses across the Middle East and Africa (MEA).
With investors, employees, customers, suppliers, and other stakeholders taking a keener interest in ESG, firms that can position themselves as leaders on the key issues can put themselves on a path to sustainable growth.
But where do MEA firms start? ESG issues are diverse and complex. They vary enormously for different types and sizes of organization and across different industries and locations.
To help you manage the risks associated with ESG and tap into some of the opportunities, we have developed 6 steps to support you at each stage of the journey.
Before we look at how MEA firms can better manage ESG issues, let's take a step back and define what environmental, social and governance means.
The "E" in ESG refers to how your business impacts the environment. That could be at a global level through your carbon emissions, but also at a local level (how your operations impact nearby air and water quality, for example).
It also refers to how the changing climate affects you. Businesses should be considering how they would be impacted by climate change from higher temperatures and rising sea levels to an increase in extreme weather events.
Useful questions to ask:
The "S" in ESG relates to how you treat people. That could be people you employ (which means issues such as diversity and inclusion, or working conditions and employment practices) and also people impacted by how your business operates, such as customers, suppliers and local communities.
Useful questions to ask:
The "G" in ESG is about the legal and ethical standards in your organization and the structures and processes you have in place to ensure those standards are maintained. This could include issues such as boardroom diversity and oversight; codes of conduct for leaders and senior executives; tax and audit arrangements; whistle-blower programs; and political donations.
Useful questions to ask:
ESG issues are unavoidable for the region's businesses.
Whether it's droughts, floods or record high temperatures, firms across the Middle East and Africa are witnessing first-hand the disruptive impact of climate change. As international ESG frameworks like the Taskforce on Climate-related Financial Disclosures (TCFD) gain traction in key markets, MEA businesses face rising expectations from their stakeholders.
In South Africa, the Public Investment Corporation – Africa's largest asset management firm – has put in place strict rules to ensure investments comply with its ESG standards. Climate-related disclosures are not yet mandatory in South Africa, but the government is consulting on rules that would align with the TCFD.
In the UAE there are similarities. There are no mandatory climate reporting requirements, but the regulatory environment can change quickly in the UAE and other Gulf states. The UAE government has made sustainable environment and infrastructure one of its six "Vision 2021" pillars. It has set itself the goal of becoming carbon neutral by 2050. And the UAE is next in line to host the UN Climate Change Conference (COP 28).
Globally, TCFD is seen as best practice even where it is not mandatory.
MEA businesses that get ahead of the regulators by gearing up for TCFD-level reporting and fully embracing ESG issues can tap into a number of potential benefits:
Building ESG issues into your business strategy is not a simple process. And there is no one-size-fits-all solution. It needs a tailored approach based on your particular circumstances.
Our 6-step model is designed to support you wherever you are on your ESG journey.
Start by performing an ESG analysis to establish where you stand and to identify ESG gaps and opportunities in your organization. You can use free assessments to complete this step, such as Marsh’s ESG Pulse Check - a quick and easy analysis - or Marsh’s ESG Risk Rating - a deep and comprehensive analysis.
Using the analysis from step one, you should work with a trusted risk advisor to perform a risk assessment that will help your board members and key stakeholders understand and prioritize what actions need to be taken. Use this information to build out an achievable ESG roadmap for your organisation.
In step three, you should focus on physical risk and transition risk modelling, due diligence and scope 1, 2, and 3 carbon-emissions accounting for your organization and supply chain. The goal here is to dig into the financial and operational impacts.
If your ESG reporting falls short, there is a risk of regulatory penalties and reputational harm. Step four is about ensuring you meet your reporting obligations and start to work on the operational and cultural changes needed within your organization.
ESG analysis and reporting will highlight areas for improvement and opportunities. Next you need to develop tailored plans and policies across your ESG issues, such as net zero, energy efficiency, and climate change adaptation.
The final step is to work with your insurance broker to discuss coverage strategies, and risk management policies, including emerging ESG risks (for example, D&O) and carbon offsetting.
If you want to start or reboot your ESG journey, get in touch and learn more about our tailored advisory and risk transfer services.
This document is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. You should consult your own professional advisers if you require any actuarial, tax, accounting or legal advice in any relation to any matter contained within this publication.
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