Reimagining ESG Optimism through Saudi Vision 2030

Reimagining ESG Optimism through Saudi Vision 2030

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

  • Published Date: Dec, 2023
  • Report ID: Astra-300103
  • Format: Electronic (PDF)
  • Number of Pages: 70

Environmental, Social, and Governance (ESG) practices in Saudi Arabia have rapidly been gathering pace. This is in pursuit of economic diversification and sustainable development, where ESG practices are pivotal. These factors have highly influenced corporate behavior and promoted responsible business conduct within the kingdom. In this regard, Saudi Arabia has taken steps to incorporate ESG considerations within its regulatory framework. For instance, the Saudi Capital Market Authority (CMA) has introduced guidelines encouraging listed companies (public companies that are listed on the Saudi Stock Exchange or Tadāwul) to disclose ESG-related information.

Walking in the footsteps of many other nations in the Gulf Cooperation Council (GCC), in 2016, Saudi Arabia introduced its Vision 2030, serving as a blueprint for integrating ESG practices. This policy revolves around four primary goals: fostering environmentally sustainable business practices, economic diversification, establishing a transparent and accountable governance system, and uplifting socially marginalized groups.

The Saudi Vision 2030 incorporates several elements that align with ESG objectives, including long-term goals spanning various sectors aimed at reshaping its society and promoting justice, benevolence, and equality. In terms of the environment, it emphasizes enhancing energy efficiency and safeguarding natural resources. With respect to the social perspective, it aims to protect public and personal freedom and ensure stability and equal opportunities, irrespective of gender. In terms of governance factors, it focuses on advocating accountability and responsibility and endorsing traditional and cultural values in the region. 

On the other hand, government regulations in Saudi Arabia have encouraged ESG investing, and ESG performance measurement has become very important for investors and companies in the region. According to an International Monetary Fund (IMF) estimate, in 2022, Saudi’s cross-border investment portfolio (in debts and equities) reached USD 44 billion, with the world’s top asset managers - T Rowe Price, Vanguard, and Fidelity actively investing in the country. This has improved ESG disclosure and transparency among the firms in the region.

ESG Momentum in Saudi Arabia

As per public research, Saudi companies are planning to increase ESG-related assets by around 85%, from USD 18.4 trillion recorded in 2021 to USD 33.9 trillion by 2026. Since launching the ESG disclosure guidelines in 2021, the region has witnessed increasing momentum in terms of the adoption of ESG initiatives. The disclosure guidelines issued by the Saudi Exchange are in line with the recommendations of the United Nations Sustainable Stock Exchange Guidelines, which act as a tool for companies to measure and report their ESG progress and adopt ESG best practices. 

On a larger scale, the progress and influence of ESG in relation to Saudi Arabia’s national vision have been remarkable, specifically in terms of the ‘E,’ the environmental aspect. The country launched the National Renewable Energy Program (NREP) under its Vision 2030 to achieve half of its domestic energy requirements from renewable energy resources by 2030. Meanwhile, environmental protection and climate change have also been the focus areas in the region, with Saudi Arabia coming up with elevated solutions for the same. In 2021, the crown prince of Saudi Arabia announced Net Zero targets for the region at the Saudi Green Initiative Forum, which the country aims to achieve by 2060.

In addition, the Kingdom of Saudi Arabia introduced the Saudi Green Initiative in 2021 to bolster business momentum and reduce carbon emissions by over 270 million tons per year. This strategic effort aims to integrate environmental conservation, energy transition, and sustainability initiatives, with a focus on mitigating emissions, enhancing the adoption of clean energy, and addressing the challenges posed by climate change.

Saudi Arabia’s economic diversification, one of the key objectives under Saudi Vision 2030, not only signifies a remarkable transformation in revenue streams but also holds noteworthy implications for the environment. By 2022, non-oil sectors were expected to have doubled their revenue, resulting in a substantial increase in exports at USD 84.4 billion. The manufacturing and services sectors, integral to this diversification strategy, have demonstrated robust growth over two decades, collectively contributing 15% to the economic composition. This shift not only lessens the dependence of the region on oil-based revenue but also potentially reduces the environmental impact associated with fossil fuel activities.

The tourism sector, a standout success, contributed approximately 4.5% to the GDP in 2022, adding to the broader economic landscape. These tangible outcomes emphasize the efficacy of Saudi Vision 2030's Economic Diversification pillar and, concurrently, present an opportunity for the nation to integrate eco-friendly practices across various sectors, aligning with global sustainability objectives.

The increasing focus on Diversity and Inclusion (D&I) as a key performance indicator within the ’S’ of ESG has gained notable traction in Saudi Arabia. In alignment with the National Vision, the government has set a specific target for improving the participation of women in the workforce domestically. The initial goal was to achieve a 30% participation rate, and as of 2023, Saudi Arabia has exceeded this target, reaching a commendable 37%. This achievement indicates a positive trend in enhancing gender diversity and inclusion in the workplace in the coming years. Overall, this reflects the success of concerted efforts and initiatives taken by the Saudi government to empower women in the Saudi workforce compared to its neighboring countries in the GCC.

In terms of social and governance policies, the country has implemented the Personal Data Protection Law (PDPL) to improve compliance of businesses in the region with international data protection standards. This not only helps companies promote sustainable business practices but also helps the country establish an accountable governance system.

The rising emphasis on D&I, Net Zero, renewable energy programs, data protection law, and circular economy programs in the country indicates progress in fostering a broader understanding and implementation of ESG strategy that is emphasizing the country’s widespread adoption of sustainable practices in response to global challenges.

Challenges within ESG to Saudi Arabia’s Progress towards Vision 2030

Although the Saudi Vision 2030 is devised to address economic, social, and environmental challenges, it faces specific hurdles in embedding Environmental, Social, and Governance (ESG) practices among SMEs, listed companies, and private companies in the region. The economic landscape in the region is dynamic, notably with the surge in Small and Medium-sized Enterprises (SMEs). According to a 2023 report by Monsha’at, which is the general authority of SMEs in Saudi Arabia, the number of SMEs in the region has reached around 1.23 million as of the second quarter of 2023, with 42.3% of these SMEs concentrated in Riyadh.

However, despite this growth, SMEs lack resources in terms of financial and human capital to integrate ESG principles within their operations. ESG is a newer concept for SMEs in the region and the lack of integration of ESG within the regulatory framework in the country makes ESG performance monitoring and reporting a major challenge. While the region has ESG guidelines promulgated by the Saudi Stock Exchange, these are developed considering listed companies in the region.

Even though private firms have the option of following these guidelines for ESG reporting, the lack of awareness of ESG integration in the region makes ESG reporting and performance monitoring difficult for the two million private companies in the region (as of 2021). Furthermore, a 2021 study reveals that 40% of respondents from public and private companies in the region encountered a significant challenge due to the lack of internal skills and expertise required to implement ESG initiatives within their companies effectively.

This highlights a critical barrier for ESG integration within the context of Saudi Vision 2030, emphasizing the urgency for capacity building and skill development. Aligning internal capabilities with ESG objectives is essential to navigate the intricacies of integrating sustainable practices into business strategies, thereby contributing to the overarching goals of Saudi Vision 2030.

How Astra ESG Solutions can add value

Astra ESG Solutions can offer tailored support to SMEs, listed companies, and private companies in Saudi Arabia, facilitating seamless ESG reporting. We demonstrate exceptional proficiency in ESG performance monitoring, providing comprehensive analytics to measure and improve environmental, social, and governance practices. With Astra, SMEs can effectively track and demonstrate their sustainability initiatives, ensuring alignment with global standards. Moreover, our platform places a strong emphasis on internal skill development, offering training modules to empower SMEs with the necessary knowledge and expertise for successful ESG reporting.

Through a combination of advanced monitoring tools and skill-building opportunities, Astra ESG Solutions aims to empower SMEs in Saudi Arabia to navigate ESG challenges, fostering sustainable business practices and contributing to their long-term success.

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