The Influence of Effective ESG Practices on Achiev

The Influence of Effective ESG Practices on Achieving the Kuwait Vision 2035

ESG Goals, Net Zero Emissions, ESG Strategy & Development, ESG Compliance & Reporting, Sustainable Investment

  • Published Date: Jan, 2024
  • Report ID: Astra-300108
  • Format: Electronic (PDF)
  • Number of Pages: 72

Environmental, Social, and Governance (ESG) has gained traction in Kuwait since its National Development Plan, also known as the Kuwait Vision 2035, was issued in January 2017. Kuwait's national vision, The Vision 2035 or ‘New Kuwait,’ based on the Sustainable Development Goals (SDGs), is driven by a commitment to reshape its society into a financial, commercial, and sustainable hub by 2035.

There are seven pillars to the strategic vision, such as to improve Kuwait’s global and regional presence in terms of philanthropy, diplomacy, and trade and culture. It has geared up to reform and enhance the education system in the region and foster the public healthcare service system by underpinning the quality of service and providing healthcare at a reasonable cost. Some other pillars also include improving the living environment, modernizing infrastructure, developing a diversified and prosperous economy, and boosting transparency and accountability in public administration.

To achieve this vision, the country needs to demonstrate a strong commitment to adopt ESG practices. For instance, under the “living environment” pillar, the country has a target to increase the amount of renewable energy in its total power output by 15% by 2030. In terms of the ‘S’ in the ESG, the country’s vision of reforming its education system is in line with its aim of enhancing entrepreneurship in the private sector and improving the quality of the labor force in the country. However, the country’s human capital lacks skills to meet the needs of the labor market.  A World Bank report in 2021 showed that women’s labor participation in Kuwait’s workforce is far from gender parity. In terms of governance, the government is aiming to improve oversight and transparency. Overall, the state of Kuwait, in correspondence to its ‘New Kuwait’ vision, has given significant emphasis on ESG elements to promote sustainable expansion in the country, which is further discussed in this article.

ESG Momentum in Kuwait

  • Environmental Momentum

The country is focused on environmental issues such as - energy efficiency, water conservation, and environmental protection. In 2022, during the 27th Conference of the Parties (COP) in Egypt, Kuwaitpledged to reach net zero emissions by 2060. Speaking at the conference, Kuwait’s foreign minister, Sheik Salem Abdullah al-Sabah, said that the country had implemented several environmental projects to reduce emissions. Further, the region aims to become carbon neutral in its oil & gas operations by 2050. Al-Sabah stated that reaching a carbon neutrality commitment will be “a solid and serious pledge.” The state’s crown prince, Sheik Meshal al-Ahmad Al-Jaber al-Sabah, has also affirmed that Kuwait will stay committed to its environmental resolutions.

In addition, as part of Kuwait's proactive stance on environmental sustainability and commitment to ESG principles, the Kuwait Institute for Scientific Research (KISR) spearheaded the development of the Shagaya Renewable Energy Project in 2017, which was then opened in 2019. This initiative resulted in the commissioning of a 50 Mega-Watt (MW) Concentrated Solar Power (CSP) plant in 2018, reducing approximately 81,000 tons of CO2 annually.

Over the past few years, ESG has become a strategic priority for financial institutions in Kuwait due to its impact on the stability of the financial sector in the state. Earlier in 2020, at the Business Council for International Understanding, the managing director of Kuwait Investment Authority (KIA) highlighted the adoption of the Taskforce on Climate-Related Financial Disclosures (TCFD) by the One Planet Sovereign Wealth Funds (OPSWF) and encouraged the adoption of the principles of ESG investment.

These commitments and understanding of ESG validate the increased awareness in Kuwait regarding the importance of environmental principles within ESG.

  • Social Momentum

In terms of the social aspect, the country aims to improve human capital through social investments as strategized in its New Kuwait Vision. According to the World Bank, investment in equitable human capital is the need of the hour in Kuwait. Alongside, contrary to the high-income level in the region, the country has a higher mortality rate, poor health among children, and an inefficient schooling structure.

To improve health and social well-being, the country has emphasized the expansion of healthcare facilities. In 2022, the Government allocated USD 538.2 million to expand specialty hospitals and USD 5.4 billion to expand general hospitals in the region. Besides, projects, such as the Kuwait Medical Sciences Campus, the Kuwait Fire Academy, the Sabah Al-Salem Campus Research Park, and the Special Needs Schools Project for Kuwait, exemplify a commitment to social progress with the promotion of education. In terms of providing equitable opportunities for women in the workforce, the country has a target of achieving 35% of women in decision-making roles by 2035. Overall, the progress in terms of the social facet of ESG in the country is relevant as it targets improvements across workforce participation, healthcare, and education.

  • Governance Momentum

Corporate governance codes are a fundamental aspect of promoting ESG in Kuwait. Listed firms (firms that are active on the national stock exchange of Kuwait) and regulated firms in Kuwait are guided by the Kuwait Companies Law No. 1 of 2016, issued by the Kuwait Capital Markets Authority (CMA). All these regulations are based on the ‘comply or explain’ principle under Module 15 of the CMA, elucidating the importance given to the governance aspect of the ESG by the region.

The CMA regulations provide guidelines to help firms construct a balanced board focusing on corporate responsibility, form committees with at least one independent director on board, and outline a maximum term limit of three years for directors, among others. Furthermore, at the end of 2017, Boursa Kuwait, which operates the Kuwaiti Stock Exchange, made a formal commitment to launch an ESG reporting guide for listed companies to encourage ESG reporting.

Later, in 2021, it officially launched an ESG Reporting Guide called the ‘Unified Direction for a Sustainable Future’ to help listed companies with ESG implementation and reporting. This sustainability framework developed by Boursa Kuwait is based on the Global Reporting Initiative (GRI) and the United Nations’ Sustainable Development Goals (UNSDGs), which are very important ESG frameworks. Hence, the CMA and Boursa Kuwait have been driving the adoption of ESG reporting and implementation in the country, primarily for listed firms.

This holistic approach, coupled with advancements in healthcare, renewable energy, and e-governance, emphasizes Kuwait's dedication to a balanced and socially responsible path to ESG development.

Challenges Ahead for Kuwait in Achieving its ESG Goals and Vision 2035

Although Kuwait Vision 2035 is an extensive development plan with elements of ESG, it encounters various challenges that must be squared up to attain the goals outlined in its foundational pillars. Despite its attempts to take strong actions to promote ESG impact in the country, Kuwait has significant challenges to solve in terms of social and environmental indicators.

One of the key challenges to achieving the vision persists within environmental sustainability with respect to increased dependence on oil revenues. In 2022, oil revenues accounted for 92% of the total public revenues, and Kuwait exported an average of 1.9 billion barrels of crude oil per day (b/d). However, this figure decreased to less than 1.8 million b/d in the first seven months of 2023 due to a rapid change in the country’s export dynamics, which has shifted to refined petroleum products. More than 90% of crude oil and petroleum are transported through pipelines, which, on average, emit 24 grams of CO2 per Mega Joule of energy transferred. On the basis of the above statistic, considering the estimated volume of crude oil and petroleum exported by Kuwait on a yearly basis, emissions are expected to increase. As of 2023, the IEA reports that Kuwait was almost wholly dependent on fossil fuels for energy generation and expects its energy demand to triple by 2030. Furthermore, the country’s overall CO2 emissions increased by around 230% from 1990 to 2023.

Kuwait’s desert climate poses a stiff challenge to achieving environmental sustainability in the region, with its dusty and humid desert conditions making it difficult to harness renewable energy from wind turbines and solar power. Further, as it aims to increase the amount of renewable energy in its power output, as of 2023, the country generated less than one percent of its total energy from renewable energy sources, according to a report by Economy Middle East. Considering the present trend, the vision of achieving 15% renewable energy in its power output by 2030 looks a distant dream. Both its overdependence on oil reserves and the regional climate pose challenges in achieving its sustainability goals.

In terms of social pillar, Kuwait has been lagging in labor market outcomes, with only 31% of women participating in the country’s overall labor market and less than 20% of women in leadership roles in the private sector. This shows that the progress with inclusion and equality of women in the workforce needs to improve. In addition, compared to other high-income countries, women’s access to work in the region is affected by certain legal restrictions and occupational segregation is still a concern in the country.

Further, as of 2021, Kuwait continued to be one of the top destinations for migrant workers, with two-thirds of them making up the population. Recent research suggested that these people are mostly employed in hazardous jobs with low wages and suffer from poor health & safety at work. Hence, in terms of the inclusion of women and the general health & safety of the labor force, Kuwait must enforce social policies.

Overall, Kuwait has made notable progress in various areas, such as e-governance, infrastructure development, and renewable energy projects, which demonstrate its commitment to its national vision. The successful implementation of Kuwait Vision 2035 will remain a complex & long-term endeavor that requires perseverance and collaboration among various stakeholders. Kuwait has long-term, non-quantifiable strategies to reduce emissions, which include protecting natural resources and achieving carbon neutrality in the oil & gas sector by 2050.

A sudden transition to a more sustainable, knowledge-based, diverse economy requires substantial investments, strategy development, policy development, and action from a variety of stakeholders, including public firms, NGOs, private firms, & the government. As Kuwait strives to address these challenges, it has the potential to transform into a more sustainable, diversified, and prosperous country.

How Astra Can Help

Astra, with its expertise in environmental, social, and governance reporting, can play a pivotal role in supporting Kuwait's organization’s efforts to achieve the goals outlined in Kuwait Vision 2035. The company can offer expertise in improving social sustainability by developing strategies for inclusive workforce practices, enhancing labor conditions, and engaging with local communities. In terms of governance, the company can contribute to strategies in outlining policy development, stakeholder collaboration, and capacity building, fostering a coordinated and effective approach towards a more sustainable and prosperous Kuwait. Through a comprehensive reporting structure, Astra can help Kuwait’s organizations to navigate the complexities of its long-term sustainability endeavors, supporting the transformation into a diversified and environmentally conscious nation

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