The Relevance of ESG in Oman within the Context of Oman’s Vision 2040

The recent talk about "ESG" (Environmental, Social, and Governance) is a response to the increasing problems related to global warming and social inequalities. This is connected to worldwide and regional efforts, like the Paris Agreement on Climate Action and the UN Sustainable Development Goals, which aim to deal with these issues. This concept has gained widespread acceptance and prominence, particularly among the investment community. ESG serves as a valuable framework for assessing how organizations handle sustainability-related risks and opportunities, irrespective of their industry or location around the world.

The National Vision of Oman (Vision 2040) is guided by several elements aligning with the objectives of ESG, including long-term goals across various sectors.  This Vision includes four pillars: People and Society, Economy and Development, Sustainable Environment, and Governance & Institutional Performance. Achieving the targets of these pillars directly depends on achieving certain ESG targets.

In terms of environmental initiatives, the region has targets to improve energy efficiency and protect natural resources. With respect to social initiatives, the region aims to guarantee stability and offer equal opportunity to all, irrespective of gender. In terms of governance, the nation aims to focus on promoting justice, benevolence, & equality to protect the public, promote traditional & cultural values, and promote accountability & responsibility across firms operating in the country.

Oil & Gas Companies Set Sights on ESG

Since the creation of ESG policies and guidelines, ESG has been a critical area for companies operating in the oil & gas industry. The industry is highly responsible for methane emissions that increase GHG emissions, contributing to global warming. According to a country commercial guide, in 2022, Oman’s estimated revenue from oil & gas was around 65% of the total government budget, making the region heavily dependent on oil and gas for revenue.

While ESG-friendly technologies continue to evolve, any oil & gas company ignoring an ESG strategy might find itself subject to regulatory penalties and affect both public and private capital, which makes ESG reporting and ESG strategy development highly relevant across the region in 2023.  In line with this, Oman, like many other countries, has started acknowledging the growing importance of ESG performance and ESG reporting across its diverse industries, specifically the oil & gas industry. 

ESG Momentum in Oman

Currently, there is a significant surge in Oman’s ESG considerations. In 2023, the Muscat Stock Exchange (MSX) became Oman’s first regulator to make ESG performance reporting compulsory for public joint stock companies, also known as SAOG companies in the region. The MSX guidelines align with the objectives of Oman’s Vision 2040. This move encourages all publicly listed companies in the region to disclose ESG information.

The MSX has developed ESG guidelines consisting of 30 ESG metrics, including labor practices, carbon emissions, and board diversity, that are mandatory for SAOG companies to disclose from March 31, 2025. 2023. Hence, from 2025, public companies are expected to furnish standalone ESG reports that disclose their ESG performance in accordance with the Global Reporting Initiative (GRI) standards.

Regarding the ‘E’ in ESG, the region has ramped up its green financing and increased investments in renewable energy facilitated by regional government initiatives and/or public-private partnerships. Green power investment in the region is spearheaded by the green hydrogen project, where the country plans to produce up to 8.5 million tons of green hydrogen per year by 2050.  Petroleum Development Oman (PDO), one of the largest petroleum companies in Oman and responsible for 70% of the nation’s oil & gas production, has set targets to reduce scope 1 and 2 emissions by 50% by 2030 and has pledged to become Net Zero by 2050.

Speaking at the Oman Sustainability Week in 2022, the Managing Director of PDO, Steve Phimister, said that the company leads by example and seeks innovative ways to reduce its operational impact on the environment. He further added that the firm ensures to meet the oil & gas demands in the country without creating a negative impact on the environment and the communities in which it operates. Overall, the government in the region is creating policies and targets to lower the negative impact on the environment.

In terms of Social, the government created a new labor law in 2021, emphasizing improved working conditions for employees. The establishment of a sustainability framework coincides with increasing recognition of ESG risks among global investors, as well as endeavors in the oil-producing Gulf region to draw investments towards low-carbon and environmentally sustainable ventures. In addition to government and corporate endeavors, the advisory community (including banks, lawyers, and consultants) has dedicated substantial efforts to enhance awareness and client engagement on ESG through public and private webinars and conferences.

These initiatives have aimed at capacity building, handling transactional mandates, and providing advisory services. The pandemic heightened the sector's focus on the vulnerabilities and risks inherent in the traditional 'business-as-usual' model, prompting advisory firms to actively educate themselves and their clients on the challenges and opportunities associated with the global mainstreaming of ESG principles.

This indicates progress in fostering a broader understanding and implementation of ESG reporting and emphasizes the need for sustainable practices in response to global challenges.

Challenges to Oman's Progress Toward Vision 2040 and the Role of ESG in Overcoming Them

Despite having emission reduction targets, green hydrogen projects, and workforce laws in place,  Oman lacks enhanced provisions towards governance, such as ESG disclosure agreements, ethical guidelines, accountability laws, and anti-corruption laws. Amidst Oman facing a multitude of challenges on its journey to Vision 2040, the incorporation of Environmental, Social, and Governance (ESG) principles introduces an additional layer of complexity to the dialogue. Navigating the intricate process of economic transition and balancing public and private sector dynamics must now account for the demands of ESG considerations.

On the other hand, it is also important for Oman to strike a balance between economic growth and environmental sustainability while also addressing financial constraints and dealing with finite natural resources.  Moreover, as Oman addresses water scarcity, youth unemployment, and global economic uncertainties, embedding ESG principles becomes pivotal in fostering resilience and ensuring responsible development. To achieve the transformative goals of Vision 2040, Oman will require a holistic and sustainable approach to integrate ESG into its broader policy approach successfully. This further requires adaptive strategies, innovative solutions, and collaborative efforts. 

How Astra can add value

Aligned with Sean Ever, Chairman of the Oman Energy ESG Forum statement in November 2022 that states- "ESG will be increasingly embedded in nearly all business conversations in Oman going forward," we at Astra enhance ongoing efforts in the country by further developing and implementing industry-specific ESG strategies in accordance with MSX/region-specific guidelines.

Astra can support organizations in Oman in improving their governance performance in ESG by focusing on transparency, ethical leadership, and stakeholder engagement. This involves institutionalizing transparent ESG reporting initiatives, fostering ethical leadership, and engaging with diverse stakeholders to address sustainability and ESG concerns. Astra further integrates ESG into risk management and business strategy and provides training to employees, ensuring a comprehensive approach. Collaboration with industry peers and advocacy for responsible policies further strengthen the organization's commitment.

Above all, Astra can efficiently execute ESG reporting for the organizations in Oman, ensuring transparency in environmental, social, and governance initiatives. Aligned with global standards, we streamline reporting processes, fostering accountability and stakeholder trust. Our approach integrates ESG metrics into business strategy, promoting resilience. Astra enables compliance while contributing to sustainable business practices in line with Oman's Vision 2040. By collaborating with Astra, organizations in Oman have the opportunity to develop a resilient ESG framework as a whole.