ESG and financial performance in the Gulf

ESG and financial performance in the Gulf

ESG and financial performance in the Gulf
Gulf companies demonstrate a clear preference for investing in environmental factors. (AFP/File)
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Can corporate sustainability truly deliver financial benefits? Without a clear business rationale, ESG initiatives risk becoming hollow exercises in reputation management or regulatory compliance. Decades of research have consistently demonstrated that corporate sustainability can generate tangible financial returns in many regions. However, scholarly research on the Gulf Cooperation Council (GCC) region’s corporate sustainability practices has been very limited, often due to the perception that these companies adopted ESG initiatives later than their global peers. To address this knowledge gap, a group of three scholars (Catalina Stefanescu-Cuntze, Catarina Sa, and myself) have recently completed the first comprehensive study of GCC companies through an ESG lens. This research is currently under peer review at a leading finance journal.

Our study analyzed monthly ESG data for 54 publicly traded firms in the GCC region from January 2009 to May 2023. We included ESG scores, as well as separate E, S, and G scores, along with company size, stock returns, country, and industry information. Our sample covered large, mid-, and small-cap companies across 11 industries. To examine the relationship between ESG practices and financial performance, we employed random effects panel regressions using stock returns as a measure of performance. We considered lags of 12, 18, and 24 months for ESG scores to account for potential time delays between ESG initiatives and financial outcomes. For example, investing in cleaner energy sources may lead to long-term cost savings, but the initial investment could show up as a decrease in short-term profits (and higher ESG scores). Additionally, we controlled for market-wide returns to isolate the specific potential impact of ESG on firms’ stock performance.

What are the results? Contrary to the common belief that ESG performance directly impacts stock market performance, our study challenges this notion in the Gulf region. While ESG practices may positively contribute to sales, profits, and margins, investors do not appear to react strongly to companies’ ESG credentials, whether positive or negative. When we expanded our analysis to also consider individual environmental, social, and governance scores, market returns consistently emerge as the primary driver of stock price movements, leaving little room for ESG factors to explain variations.

While ESG practices may positively contribute to sales, profits, and margins, investors do not appear to react strongly to companies’ ESG credentials, whether positive or negative.

Rodrigo Tavares

Given these results, we have set out to consider the rare possibility of an inverse correlation, that is, whether financial performance could pave the way for better ESG scores. And indeed, we found positive evidence. In practical terms, the study demonstrates that firms allocate a portion of their profits toward enhancing corporate sustainability, with a particular emphasis on governance and environmental considerations. Gulf companies, especially those better endowed with resources, prioritize initiatives that bolster their sustainability credentials.

Gulf companies demonstrate a clear preference for investing in environmental factors (the “E” of ESG), likely reflecting a strategic alignment with national visions focused on economic decarbonization. It may reflect the region’s top-down approach, as seen in initiatives like Saudi Arabia’s Vision 2030, which encourages companies to support energy transition plans. Better-resourced companies are more capable of making significant contributions to these efforts. Similarly, GCC companies also direct their internal resources to improve governance practices (the “G” of ESG) in line with top-down guidelines. Most countries in the region have recently updated their corporate governance codes to improve the overall business environment, attract foreign direct investment (FDI), and facilitate access to capital markets with lower funding costs.

The study also reveals that the positive impact of these corporate initiatives on Gulf companies’ ESG scores diminishes over time, particularly after 24 months, suggesting a potential lack of sustained commitment to sustainability practices. This could be due to factors such as insufficient expertise in sustainability or challenges in maintaining consistent efficiency. Ensuring the long-term sustainability of ESG initiatives requires ongoing investment and commitment. Integrating ESG considerations into core strategic planning and operational processes is crucial for achieving sustained impact.

The findings suggest that GCC policymakers and corporate governance bodies should consider the temporal aspect when designing regulations and incentives for ESG investments. The study’s results are clear. Short-term initiatives, while ethical and commendable, are not enough to drive sustainable change in the GCC region.

Rodrigo Tavares is an invited full professor of sustainable finance at Nova School of Business and Economics, founder and CEO of the Granito Group, and former head of the Office of Foreign Affairs of the Sao Paulo state government.

 

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point of view

Israel says another rocket barrage from Lebanon kills 2 in Israel, hours after 5 were killed

Israel says another rocket barrage from Lebanon kills 2 in Israel, hours after 5 were killed
Updated 1 min 49 sec ago
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Israel says another rocket barrage from Lebanon kills 2 in Israel, hours after 5 were killed

Israel says another rocket barrage from Lebanon kills 2 in Israel, hours after 5 were killed
TEL AVIV: Israel’s rescue service said projectiles fired from Lebanon on Thursday killed two more people in northern Israel, raising death toll there to seven in what’s been the deadliest rocket barrage since the Israeli military’s invasion of southern Lebanon.
Magen David Adom, Israel’s main emergency medical organization, said its medics confirmed the deaths of a 30-year-old man and 60-year-old woman in a suburb of the northern city of Haifa. They also treated two other people who suffered mild injuries and were hospitalized.
The Israeli military said that roughly 25 rockets crossed into Israel from Lebanon as part of the volley that struck an olive grove where people had gathered for the harvest.
The deadly attack came just hours after officials in Metula, in northern Israel, said that five people were killed, including four foreign workers, in a rocket barrage Thursday that struck an Israeli agricultural area.
The back-to-back attacks made Thursday one of the deadliest days for civilians in Israel since the Israeli military invaded southern Lebanon on Oct. 1 as part of a widening campaign against the Lebanon-based Hezbollah militant group.
The attack came as senior US diplomats were in the region to push for ceasefires in Lebanon and Gaza, hoping to wind down the wars in the Middle East in the Biden administration’s final months.
The Hezbollah militant group has been firing rockets, drones and missiles into Israel, and drawing retaliatory strikes, since Hamas’ Oct. 7, 2023 attack out of the Gaza Strip triggered the war there. Hezbollah and Hamas are allies backed by Iran.
The conflict along the border escalated into a full-blown war last month, when Israel launched a wave of heavy airstrikes across Lebanon and killed Hezbollah’s top leader, Hassan Nasrallah, and most of his deputies. Israeli ground forces pushed into Lebanon at the start of October.
The Metula regional council reported Thursday’s attack, without detailing the number or type of projectiles used. The nationalities of the workers were also not immediately known.
Metula, Israel’s northernmost town which is surrounded by Lebanon on three sides, has suffered heavy damage from rockets. The town’s residents evacuated in October 2023, and only security officials and agricultural workers remain.
The Hotline for Refugees and Migrants, an organization that advocates for foreign workers, said authorities had put them in danger by allowing them to work along the border without proper protection.
Agricultural areas along Israel’s border, where much of the country’s orchards are located, are closed military areas that can only be entered with official permission.
Hezbollah’s newly named top leader, Sheikh Naim Kassem, said in a video statement Wednesday that the militant group will keep fighting Israel until it is offered ceasefire terms it deems acceptable. He said it has recovered from a series of setbacks in recent months, including attacks using explosive pagers and walkie-talkies that was widely blamed on Israel.
“Hezbollah’s capabilities are still available and compatible with a long war,” he said.
Earlier on Thursday, the Israeli military warned people to evacuate from more areas of southern Lebanon, as airstrikes in different parts of the country killed eight people, according to Lebanon’s state-run National News Agency.
Israel has warned people to evacuate from large areas of the country, including major cities in the south and east. Some 1.2 million people have been displaced since the escalation in September.
Thousands of people have fled from Baalbek, the main city in Lebanon’s eastern Bekaa Valley, and surrounding areas after Israeli evacuation warnings and aerial bombardment on Wednesday.
Jean Fakhry, a local official in the Deir Al-Ahmar region, some 17 kilometers (10 miles) to the southeast, said the main highway “turned into a parking lot.” He said around 12,000 displaced people are staying in the area, with most being hosted in private homes.
At one of the shelters, families with luggage were still arriving on Thursday.
“Our homes were destroyed,” said Zahraa Younis, from the village near Baalbek. “We came with nothing — no clothes or anything else — and took shelter here.”
More than 2,800 people have been killed and nearly 13,000 wounded in Lebanon since the conflict began last year, according to the Lebanese Health Ministry.
In Israel, rockets, missiles, and drones launched by Hezbollah have killed at least 68 people, about half of them soldiers. More than 60,000 Israelis from towns and cities along the border have been evacuated from their homes for more than a year.

Saudi Arabia to host inaugural ImpaQ Forum for influencers, content creators

Saudi Arabia to host inaugural ImpaQ Forum for influencers, content creators
Updated 26 min 58 sec ago
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Saudi Arabia to host inaugural ImpaQ Forum for influencers, content creators

Saudi Arabia to host inaugural ImpaQ Forum for influencers, content creators
  • The landmark event, announced by media minister Salman bin Yousef Al-Dosari, will be Saudi Arabia’s largest gathering for influencers, digital content creators and industry experts

RIYADH: The Saudi Ministry of Media announced on Thursday the launch of the ImpaQ Impact Makers Forum, set to take place on Dec. 18-19 in Riyadh.

The landmark event, announced by media minister Salman bin Yousef Al-Dosari, will be Saudi Arabia’s largest gathering for influencers, digital content creators and industry experts, aimed at redefining the role of influence in the rapidly evolving digital landscape, Saudi Press Agency reported.

The forum is expected to bring together more than 300 influencers from around the world, spanning diverse fields and specializations.

Designed to foster meaningful dialogue between local and international talent, the forum will explore ways to enrich societal values, promote purpose-driven influence and share expertise, SPA added.

In total, the event will feature more than 40 programs, workshops and discussions.

One prominent discussion area, “Who is an Influencer?”, will tackle the evolution of the term in today’s digital world, where influencers are now expected to use their platforms responsibly.

Another focus, the “Purposeful Influence” track, will highlight influencers who leverage their platforms to address pressing global issues, from social justice to environmental advocacy.

Experts will delve into the future of social platforms, discussing trends such as artificial intelligence, interactive media, emerging social networks and the integration of virtual and augmented reality. Several leading international companies in AI, digital marketing and media will also participate, offering attendees insight into industry advancements and potential collaborative opportunities.

The forum will offer 12 hours of programming daily and is expected to attract a wide range of attendees, from seasoned influencers to aspiring digital creators, as well as representatives from government and the private sector.


What We Are Reading Today: The Lobotomist’s Wife

What We Are Reading Today: The Lobotomist’s Wife
Updated 28 min 48 sec ago
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What We Are Reading Today: The Lobotomist’s Wife

What We Are Reading Today: The Lobotomist’s Wife
Author: Samantha Greene Woodruff

This is a story that illuminates the chilling history of lobotomies. It is told from the perspective of Ruth, the wife of an innovative, revolutionary, and charismatic neurologist, and it shows the shocking truth behind this formerly widespread medical practice, according to Princeton Book Review. Ruth is easy to like; she is relatable and deeply cares for the patients, always striving to do what is best.
The book also explores themes of love, betrayal, and the catastrophic fallout of unbridled ambition.

Pakistan’s national airline attracts $36 million bid from real estate company

Pakistan’s national airline attracts $36 million bid from real estate company
Updated 31 October 2024
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Pakistan’s national airline attracts $36 million bid from real estate company

Pakistan’s national airline attracts $36 million bid from real estate company
  • Sole bidder Blue World City refuses to match government’s minimum price for Pakistan International Airlines
  • Pakistan plans to sell over 51 percent of its stake in loss-making PIA as envisaged under an IMF deal this year

ISLAMABAD: Pakistan’s national flag carrier received a Rs10 billion [$36 million] bid from real estate development company Blue World City on Thursday for sixty percent of its stakes during a televised auction, much below the minimum price for the airline set by the government.
Pakistan plans to sell more than 51 percent of its stake in the loss-making Pakistan International Airlines (PIA) as part of economic reforms Islamabad agreed to with the International Monetary Fund (IMF) for a critical 37-month $7 billion bailout deal approved in September.
Pakistan’s government had pre-qualified six groups in June, but only real estate development company Blue World City met a Tuesday deadline to submit final documents to participate in the auction.
The state-owned Pakistan Television (PTV) broadcast the bidding process live, with Blue World City as the sole bidder. The bid for $36 million was read out in front of government officials and financial advisers. The government had set a minimum price of Rs85 billion [$305 million] for the airline.
“We have considered your match price option,” Blue World City Chairman Saad Nazir said during the event. “We have decided to stand with the price we have already submitted.”
 Nazir refused to match the government’s offer of Rs85 billion, saying that as per the company’s assessment, “this was the best decision.”
“If the government doesn’t privatize [PIA], we wish the government all the best,” he said.
 Pakistan’s privatization commission has allowed some time for potential bidders to see if any would outmatch Blue World City’s bid.
“The government couldn’t get the fair price of the PIA through the auction due to the single bidder,” Haroon Sharif, a former member of the cabinet committee on privatization, told Arab News.
“There was no competition to purchase stakes of the national carrier.”
The government’s initial plan was to finalize the deal to sell PIA on the country’s Independence Day, Aug. 14, but the plan was delayed following requests from bidders waiting for the airline’s latest audited accounts, aircraft lease agreements and clarity on flights to Europe, which are currently banned.
This auction was delayed to September and October but those also did not materialize.
Sharif said the government should have extended the auction’s deadline to involve more bidders in the process.
“Now it looks like the government is privatizing the PIA in desperation,” he noted.
Official data available with Arab News shows there are 88 commercially operated state-owned enterprises in Pakistan, with collective losses of up to Rs730.258 billion ($2.61 billion) in the fiscal year 2022 (FY22).
In its five-year privatization plan ending in 2029, the government has approved 24 state-owned enterprises for sale, including the PIA.
With a fleet of 34 aircraft comprising 17 Airbus A320s, 12 Boeing B777s and 5 ATRs, the PIA loses traffic to Middle Eastern carriers who have a market share of 60 percent, because of an absence of direct flights to destinations.
The carrier has air service pacts with 87 countries, and landing slots at key destinations such as London Heathrow.
The reorganization plan of the business will separate the aviation-related aspects from non-core components, so freeing the operating subsidiary of a large portion of legacy debt.


Hull, Babnik and Sobron lead Aramco Team Series Riyadh

Hull, Babnik and Sobron lead Aramco Team Series Riyadh
Updated 31 October 2024
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Hull, Babnik and Sobron lead Aramco Team Series Riyadh

Hull, Babnik and Sobron lead Aramco Team Series Riyadh
  • Hull came out at a blistering pace, with four birdies and an eagle wrapping up her front nine of six-under-par
  • The Ladies European Tour’s rising star Chiara Tamburlini led her team to equal the record of 23-under-par

RIYADH: A strong opening day of the Aramco Team Series presented by PIF – Riyadh saw three players share the clubhouse lead as Charley Hull, Pia Babnik and Luna Sobron each finished at seven-under-par.

Hull came out at a blistering pace, with four birdies and an eagle wrapping up her front nine of six-under-par, as she began the hunt for her first win since 2022 at this week’s Golf Saudi organized event

The English star, who has been finished in second place twice on the series this year, added a further two birdies to her scorecard, before walking off with a bogey on the 18th, after just missing a short putt.

“It's a very, very scoreable golf course,” said Hull reflecting on her day. “You could shoot 60 – I was looking to shoot a 58 after the front nine - but yeah, I played well.

“It was a shame about my putt on the last, it just bobbled. It went straight down like a line on the green, but I played pretty decent.”

When asked about her increased length off the tee this year, adding 10 yards, Hull was unfazed – explaining this is just a biproduct of her own personal fitness drive.

“I don't train for golf,” she explained. “I have no interest in doing golf training like I just trained for me. In my mind that that's what's happened. I've hit it a bit longer, it's bit of a bonus.”

Also in the clubhouse at seven-under-par was Slovenian Pia Babnik, winner of the Aramco Team Series presented by PIF in Jeddah in 2021, aged just 17. After bursting onto the scene, Babnik finished 2022 ranked 67th in the world, but has since struggled for form, dropping as low as 512th.

Coincidentally, Babnik was introduced to her new coach, Matt Belsham, through Charley Hull – who has helped Babnik to rebuild both her confidence and her technique.

“I've been working with him since last August,” said Babnik. “It's just been amazing. He helped me a lot. I still have my dad as a coach, but it's just good to have Matt. He completely changed my swing to be more compact and, yeah, just more stable.

“My technique was just terrible, so we're still working on that, and then the power will come back as soon as I get the feel of the new technique.”

Spaniard Luna Sobron found herself at the top of the leaderboard early in the day, finishing the day at seven-under-par. Following a year battling injuries and losing her LPGA tour card, it’s a welcome return to form for Sobron – made all the more impressive by the fact it was her course debut.

“It’s a really good course,” said Sobron following her round. “I only had nine holes of practice on Tuesday and nine on Wednesday, but you can really score low with the right shots.”

“My putting was on fire, I made nearly all of them. I have changed up my putter, and now I’m using aimpoint – so I feel like everything has become much clearer to me.”

There was also a hole-in-one early in the day, as South Africa’s Cassandra Alexandra walked off with an ace on the sixth hole – a 165-yard par-three. The magical moment was actually missed by Alexandra, following on from some debate with her caddie on what club to use.

“I didn’t see it!” she admitted. “It was Anabel Fuller’s mum who told me, and I was like, ok cool! My caddie had a nine iron in mind, but I thought a chippy eight would be good… and chippy eight it was. I missed a few putts, if I could have made one or two more, I would have been even happier, but three under for the day, I’ll take it.”

In the team element, the Ladies European Tour’s rising star Chiara Tamburlini led her team to equal the record of 23-under-par, a single day scoring record for the series. After winning the team event in Shenzhen, Tamburlini is keen to become the first ever captain to win successive titles.

Tamburlini’s group is made up of Anne-Charlotte Mora, Mimi Rhodes and amateur Teniel Chu – who contributed with an incredible 11 net birdies to the team score.

“We had a great team again, and we all played well,” said Tamburlini. “But to be top again, it just shows as well how much I love this format and how well it suits my game and my mental game especially. Hopefully we'll get it done tomorrow.”

Day two of the tournament begins on November 1, at Riyadh Golf Club. For more information, visit www.aramcoteamseries.com.