Environmental, social, and governance (ESG) practices have taken center stage in Bahrain since the national stock exchange of Bahrain, Bahrain Bourse (BHB), in 2020, launched voluntary ESG reporting guidelines for public companies listed on the BHB stock exchange. While launching its Annual Report in 2019, BHB included ESG information as part of the report, becoming the very first firm to introduce ESG.
The CEO of BHB, Shaikh Khalifa Bin Ebrahim Al-Khalifa, said that the BHB had made a formal commitment to driving sustainability in the kingdom of Bahrain. He further stated that it has built upon this initiative to issue ESG reporting guidelines to assist listed companies (public companies listed on the BHB stock exchange) in the region. The stock exchange asked boards of public firms to disclose their performance against 32 Key ESG metrics and develop comprehensive ESG reports. These KPIs are aligned with ESG frameworks such as the United Nations’ Sustainable Development Goals and the Global Reporting Initiative (GRI). The guideline issued by BHB describes the importance of ESG reporting and ways to report ESG information.
In 2008, Bahrain launched its ‘Economic Vision 2030’ based on three guiding principles, namely sustainability, fairness, and competitiveness. Since then, the region has recognized sustainability as a key aspect of growth. Under the ‘sustainability’ principle, the private sector should be able to boost economic growth independently by 2030 and use training and education to enhance human capital in the country. In addition, this guideline focuses on protecting the environment while the government continues to count on human capital, government finance and high economic growth.
Furthermore, the country is focused on improving the standard of living of the middle-class population through job creation and improving employee wages. ESG implementation is key to the region, as all these goals are directly tied to social and environmental progress which can further be improved by effective governance practices.
In November 2023, Bahrain unveiled a National Energy Strategy to promote environmental sustainability in the region. The Government mentions that this strategy is a clear and responsible pathway for achieving climate targets, which it has promised to achieve at the United Nations’ 26th Conference of Parties. The country has promised to achieve Net Zero emissions by 2060 and reduce emissions by 30 percent by 2035.
Bahrain has strategized to optimize energy demand for reducing energy consumption, diversifying its energy mix to include clean energy, and deploying technologies for carbon reduction. In addition, as a part of its National Energy Transition Plan, the Government aims to have five percent of its total electricity from renewable sources by 2025 and targets increasing this figure to 20 percent by 2035. Hence, the Government has set clear and quantifiable targets to improve energy efficiency in the region and combat climate change.
Furthermore, top companies in Bahrain have made commitments to combat climate change. For instance, Bahrain’s Gulf Aluminium Rolling Mill (GARMCO), which is one of the Middle East’s largest aluminum facilities, has developed a GARMCO Green Initiative, under which the firm aims to manufacture high-quality recycled aluminum products using eco-friendly processes. In this regard, the company has obtained an ISO 14021:2016 environmental management certification for promoting environmental best practices within its operations. Another prominent retail chain in the country, Lulu Group, has collaborated with a leading distributor of solar power in the region – SirajPower, to install 10 Megawatt peak (MWp) of rooftop solar systems across the firm’s key locations in Bahrain. This is expected to reduce 12,078 metric tons of carbon dioxide (CO2) emissions and generate 17 GWh of clean energy annually. Overall, both the government and companies across Bahrain have spearheaded initiatives under the ‘E’ in the ESG to promote environmental sustainability in the region.
Bahrain has ensured a prolific social momentum in comparison to environmental and governance momentum from a policy standpoint. In 2021, the country established a “Law on Restorative Justice” to promote reintegration and rehabilitation among children. The law aims to protect children from maltreatment and physical or moral neglect and offer them emotional and social care alongside giving them good health and education.
In addition, to expand ‘environment-friendly’ educational infrastructure, the Ministry of Education plans to launch 24 academic buildings and 18 new schools by 2030 using a budget of around USD 312 million. According to Bahrain’s education minister Al Nuaimi, these corporate structures will eliminate light pollution by having natural lighting and use modern technologies for energy saving. On the other hand, Bahrain has made significant improvements in ensuring women’s participation in the workforce and closing the gender pay gap.
According to the World Bank’s estimate for 2022, Bahrain had 44 percent women participation in its labor force. This representation is higher than its neighboring countries, Saudi Arabia (28 percent women representation in the labor force) and Oman (32 percent). Further, in 2021, Bahrain’s Majesty, King Hamed, issued a decree to close the gender pay gap in the country by amending the provisions of Law 36/2012. This law will prohibit companies from discriminating against the wages of female and male workers in the same job.
The country has invested in initiatives to promote human capital development to improve social sustainability in the region. In 2022, the Government allocated approximately 1.98 percent of the total GDP to support the education sector and develop the country's human capital. In addition, the government, in 2022, initiated the King Hamad Causeway transportation infrastructure project, a proposed crossway or bridge to strengthen economic and political ties in the country. The initial investment in this project was USD 3.5 billion, and this is expected to have a notable social impact on regional supply chain dynamics and create employment opportunities for the public.
Businesses can anticipate streamlined cross-border logistics, potentially lowering costs and enhancing the reliability of the supply chain. Furthermore, the construction and ongoing operation of the Causeway are expected to generate a number of jobs, ranging from skilled labor in construction to various roles in maintenance, operation, and support services. This influx of employment opportunities contributes to social and economic development.
The government's other ambitious social development program is “The Social and Affordable Housing Programme,” which was established in 1970 to promote affordable and accessible housing. Through these initiatives, the government has provided 130,000 housing services to date. As of 2023, approximately 65 percent of the citizens have benefited from this program. Thus, the country has fostered social inclusivity and contributed to improved living standards to promote social momentum in the country.
In terms of governance, Bahrain has taken several steps to improve sustainability among firms. To reiterate, BHB, Bahrain’s stock exchange, has spearheaded the launch of mandatory ESG disclosure among companies listed on the stock exchange to improve organizational transparency and sustainability across companies in the market. BHB, as a partner exchange member of the Sustainable Stock Exchanges (SSE) initiative, has issued ESG reporting guidelines for investors to act sustainably. In addition, the Digital Government Strategy 2022 is aimed at promoting transparency for companies across the private and public sectors. This has helped improve decision-making for projects and employ advanced big data technologies.
Furthermore, to improve the business environment for firms in the region, the government has continued to work with regulators and businesses to liberalize business activities by permitting 100% foreign ownership for activities, and it has abolished minimum capital requirements for businesses. Overall, the government has focused on improving transparency and accountability among firms in efforts to foster the ‘G’ in the ESG.
Challenges to Bahrain in Achieving Vision 2030:
Bahrain’s Economic Vision 2030 is an ambitious and comprehensive development plan that integrates several initiatives that augment ESG development in the region. The country’s overall progress across key ESG parameters stands out compared to its counterparts in the GCC, mainly across emissions control, clean energy initiatives, improving gender diversity, lowering the gender pay gap, and implementing ESG reporting mandates.
However, there are a few challenges from an environmental perspective while it aims to achieve its Vision. First, Bahrain’s exposure to environmental risks, such as climate change, is high due to desertification, water scarcity, and sea level rise in the country. In addition, the petroleum industry, which plays an integral role in the revenue share of the country, contributed to roughly 70% of the total government revenue as of 2020 (most recent information available) in the country.
Activities related to the oil & gas industry have increased environmental concerns that primarily include oil spills in the ocean, causing degradation across coastal areas. Hence, rigorous actions toward environmental consciousness are primary. Financing may play a key role in promoting adaptation efforts or strategies aimed at improving the environment through building sustainable structures and restoring damaged ecosystems. Meanwhile, this requires improvement across ESG practices, mainly across ESG reporting for firms in the region, which may help in better risk management, improve reputation, and attract investment.
Furthermore, Bahrain's transition to a circular economy faces obstacles due to its small size and limited natural resources. The challenge lies in the restricted availability of resources for recycling and reusing materials, particularly across industries like oil and heavy manufacturing. This limitation constrains the feasibility of the adoption of circular practices in the region.
From a social lens, the Value Added Tax (VAT) hike in Bahrain could present challenges to the effective implementation of ESG principles in the country. With effect from 2022, the Bahrain Government raised the VAT from 5% to 10% for all supplies and goods to increase the government revenue and decrease the budget deficit. This rise in VAT can pose significant challenges from a social perspective, as it may lead to higher living costs and increased prices for goods and services, affecting housing affordability and necessities, which negatively impact the social well-being of citizens.
For Small to Medium-sized Enterprises, the implementation of VAT has affected their production by decreasing their profit margins. Overall, while there are primary issues for Bahrain to address in terms of the E of ESG, the overall impact of challenges within the ‘S’ component on the progress of its Vision 2030 is tertiary. Improving ESG reporting and implementation practices might be the key to driving Bahrain’s ESG leadership in the Gulf.
Astra can offer crucial support to Bahrain in overcoming the environmental and social challenges outlined in its pursuit of Economic Vision 2030. By providing comprehensive ESG reporting services, Astra can assist companies in the region, especially those in the petroleum industry, in measuring and disclosing their environmental impacts, such as emissions, oil spills, and resource consumption. Through transparent reporting, these companies can not only enhance their risk management strategies but also demonstrate a commitment to environmental consciousness. Moreover, we can help businesses navigate the social challenges stemming from the VAT hike, facilitating the integration of social considerations into their corporate strategies. By fostering improved ESG practices, Astra can contribute to building a sustainable framework for businesses in Bahrain, ultimately supporting the country's transition to a circular economy and bolstering its position as a leader in ESG initiatives.
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