In this edition of Frontiers in Finance, we focus on an area of rapidly growing importance to the financial services sector — the environmental, social and governance (ESG) agenda. The topic is rapidly gaining in relevance to the way firms operate in today’s world. However, in the intervening period since work on planning and compiling the publication began, another truly momentous issue has confronted all of us globally, Covid-19. We have decided to retain our focus on ESG as it is an area that cannot — and should not — be ignored. In fact, Covid-19 exemplifies the interdependent relationship a company has with the community it serves, and highlights the
prominent role that impact and key ESG factors have in contributing to the resilience of a business. The World Economic Forum’s Global Risk Report 2020 highlights that seven of the top ten risks, ranked by impact, are societal and environmental. For the first time in the survey’s ten-year outlook, the top five global risks in terms of likelihood are all environmental.1
Recognizing the urgent need to act, the UAE is leading the charge in ESG best practices. The UAE Centennial 2071 is a long-term government plan that encompasses, among other goals, to create a future focused environment and diversifying imports and exports to move away from an oil based economy.2
Regulators are following suit. The Abu Dhabi Securities Exchange (ADX) released guidelines for companies to start reporting on sustainability. To comply, companies must disclose critical ESG issues in accordance with the Global Reporting Initiative (GRI). Listed companies are required to submit an independent report on sustainability, aligned with the GRI standards, and must address 31 sustainability related KPIs, communicating them publicly each year.3 Meanwhile, in November 2019, Dubai Financial Market (DFM)
announced that it launched its Guide on ESG Reporting, in line with the UAE Sustainable Development Goals 2030, the Dubai’s Strategic Plan 2021 and green economy drive.4
In this publication, we set out six considerations for financial institutions as they — along with governments, policy-makers and other business sectors — grapple with how to respond to the current situation and what actions to take. These include maintaining a focus on: employees, customers, liquidity, supplier relationships and third party dependency, communications and transparency, and scenario planning.
It is to be hoped that the virus will be contained and economies will overcome the challenges. In the same vein of positivity, we focus on the ‘upside’ for financial services firms of the ESG agenda rather than dwelling on the risks. We highlight opportunities, explore exciting new trends and dig deep into new and emerging growth areas. We talk to leaders in the field to find out how they are turning the ESG agenda to their advantage, sending a strong signal to the market. Yet we are certainly not ignoring the risks.
We also seek to tackle — head on — many of the biggest challenges facing the industry today. We look at the growing demand for standardized approaches to ESG measurement and disclosure. We assess ever-changing political and regulatory expectations and the influence on the financial services agenda. And we acknowledge the potential for significant financial disruption as the world moves towards a low-carbon economy. At every step, our authors and contributors focus on illuminating the opportunities. They offer constructive advice for dealing with the challenges. And they use real- world examples to demonstrate that the ESG agenda can drive positive results for those financial services firms willing and able to embed ESG into their strategy and operations.
KPMG Lower Gulf is committed to playing a positive role in the discourse around the ESG agenda. We are engaging with clients, governments, financial services authorities, regulators and standard-setting bodies to help reduce the complexity and uncertainty of the transition. We hope that this publication serves as a catalyst to the financial services industry, inspiring optimism and encouraging action, allowing financial services executives to combine both purpose and profits to the greater good of society and shareholders alike.
On behalf of KPMG Lower Gulf’s financial services professionals, we would like to thank everyone who contributed to this publication. By sharing your ideas, experiences and insights, you are helping drive forward a more resilient and more successful financial services industry. To learn more about the issues raised in this edition of Frontiers in Finance — or to discuss your organization’s unique ESG agenda and roadmap, or the impacts of Covid-19 — we encourage you to contact any of the authors listed in this publication.