Sustainability Reporting in the MENA Region by RIBH MENA

Communicating Corporate Sustainability in the MENA Region A comparative study on non-financial reporting across 17 countries in the Middle East and North Africa

Published by:

Communicating Corporate Sustainability in the MENA Region

Published by: Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH Responsible & Inclusive Business Hub MENA Registered offices: Bonn Office Friedrich-Ebert-Allee 40 53113 Bonn Germany Tel. + 49 (0) 228 4460 – 0 Fax + 49 (0) 228 4460 – 1766 Eschborn Office Dag-Hammarskjöld-Weg 1-5 65760 Eschborn Germany Tel. + 49 (0) 6196 79 – 0 Fax + 49 (0) 6196 79 – 1115 Email: info@giz.de Website: www.giz.de Lead Authors: Ahead of the Curve, Pascale Nader, Dina Sherif Place and date of publication: Cairo, March 2014 On behalf of: Federal Ministry for Economic Cooperation and Development (BMZ) Registered offices: Bonn Office Dahlmannstraße 4 53113 Bonn Germany Tel. +49 (0) 228 99 535-0 Fax +49 (0) 228 99 535-3500 Berlin Office Stresemannstraße 94 10963 Berlin Germany Tel. +49 (0) 30 18 535-0 Fax +49 (0) 30 18 535-2501 Email: poststelle@bmz.bund.de Website: www.bmz.de

Executive Summary This study was conducted to examine the current trends in sustainability reporting among main local private sector companies in the MENA region; represented by stock-listed companies based in countries from the MENA region. The study provides an integrated view of the incidence, frequency and content of sustainability reports published by companies across 17 countries and over 25 industry sectors.

(ii) Companies leveraging sustainability networks, industry associations, and capital market associations benefit from stronger frameworks, supporting material and knowledge; all of which positively influence reporting trends. (iii) Companies involved in stakeholder research and engagement are reporting extensively on sustainability performance and using internationally acknowledged sustainability report formats. Findings show that nearly 60 percent of the com- (iv) MENA-based companies linking sustainability panies studied are communicating commitments with business strategies are currently doing so in or performance on issues related to sustainability. four main areas by expanding markets, developing While most companies maintain a broad view of new knowledge and policies, achieving operational their role in tackling sustainability issues, a notice- efficiency and through stakeholder engagement. able shift is occurring towards a closer linking of (v) A small percentage of companies (approximatethe corporation with its operating environment ly 7 percent of companies studied) are kicking off and core competencies as a company. initiatives to report on their corporate sustainability and responsibility using metrics and data Reviewing material sustainability issues facing that add multi-dimensional layers of value to their different countries and industry sectors provided company and society and further communicates a larger context in which to evaluate companiesâ&#x20AC;&#x2122; commitments to stakeholders. sustainability efforts. Top priority sustainability themes shared in the region were identified as: Based on these insights, it is recommended to enhance efforts towards building an enabling envi(i) Governance ronment for sustainability reporting that includes: (ii) Water management Enhancing capital market authoritiesâ&#x20AC;&#x2122; efforts to (iii) Energy solutions champion adopting sustainability, as well as de(iv) Sustainable building practices veloping and enhancing the pool of business asso(v) Sustainable finance ciations alongside other networks who champion sustainability reporting and practice; This document outlines many cases of MENA- Development of national and regional organizabased companies initiating strategic sustainability tions / associations that focus on and specialize actions on issues that are material and impactful to in sustainability issues and introduce platforms its core business activity. that allow different stakeholdersâ&#x20AC;&#x2122; (consumers, local communities, public sector, civil society, etc.) This report evaluates a range of reporting trends interaction around the topic; and concludes with the following: Introducing frameworks for sustainability aligned (i) There are higher incidences of reporting among business development; and designing a tool kit for companies operating in countries or sub-regional stakeholder engagement, which is shown to have markets with strong governance priorities espe- a positive correlation with reporting and sustaincially regarding capital market authorities. ability management.

Communicating Corporate Sustainability in the MENA Region

Introduction (Pages 6-10)

Comparative Trends in Sustainability Reporting in the MENA region (Pages 12-24)

6 7 8 10

A Word from GIZ A Word from the Authors Sustainability & the Importance of Reporting Methodology & Approach

Patterns of Reporting 12

General

13 Countries 19 Sectors 24 Size

Areas of Materiality (Pages 28-35)

Developments & Challenges in Reporting (Pages 38-41)

38 41

Governance

Water Management

Energy Production & Solutions

Sustainable Business Practices

Sustainable Finance

Adopting ESG Reporting Linking Sustainability & Business Strategies 41

Expanding Markets, Products &

Innovation

Developing Knowledge, Policy

& Governance

Moving Towards Enhanced Reporting & Stakeholder Engagement (Page 54)

Annex 1: Summary of Sample Findings (Pages 56)

Operational Efficiency

Stakeholder Engagement

48 52

Data & Metric-Driven Reporting Using Reporting Guidelines

Introduction

INTRODUCTION

Communicating Corporate Sustainability in the MENA Region

A Word from GIZ When the Middle East and North Africa (MENA) region appears in international news headlines, the messages broadcast are typically not ones we can call positive. Messages portrayed make it seem as though the MENA region is either stuck in political turmoil or engaged in the creation of unsustainable cities on desert soil. This has so far been the cliché to which many subscribe to. However, here at the Responsible & Inclusive Business Hub, short ice_ribh, we believe in a different, more diverse and more nuanced story of a region where people care and work together to shape their countries to be more sustainable and resilient; countries where economic growth is aligned with environmental limitations and values of social inclusion. This may not be the mainstream story, but it is in fact a reality on the ground that is gaining speed. As with other regions, the MENA region’s private sector has an ever-increasing role to play in this regard and is starting to do so with much enthusiasm, skill and monetary resources. Together with a thriving civil society and governments, companies are beginning to innovate business models that cater to society’s demands for products and services that don’t compromise social and environmental welfare. The increasing depth, transparency and professionalism with which companies from Morocco to Bahrain report on their activities, achievements and challenges associated with their efforts to become more sustainable organizations is testimony to this paradigm shift away from the charity-driven Corporate Social Responsibility (CSR) approach to one that is in strategic alignment with core business. It is encouraging to witness that a number of large corporations from the region are engaged in open and constructive dialogue with stakeholders to improve how business is done. The return on time and money invested in doing so is often products that people really demand and innovations that people really need – resulting in the mutual benefit of both society and business. Still, as encouraging as developments of the past years might have been, much still needs to be done for companies to fully embrace sustainability management of which reporting and communications are only the visual manifestation to the outside world. As this report on sustainability reporting aptly highlights, there are considerable differences in communication patterns between countries, sectors and organizations of different sizes. Too many companies are still mute on both their negative and positive impacts on economies, people and the environment. In a more and more challenging, demanding and competitive environment, companies that embrace sustainability management and associated innovations and reputation gains are here to stay. All others risk to be left behind in the unraveling world of business as usual. Bernhard Rohkemper Head: Responsible & Inclusive Business Hub MENA

Introduction

A Word from the Authors In today’s world of endless challenges and an increasing interconnectivity, the adoption of sustainable business practice is no longer an option if a company wants to continue to exist and stay relevant. Environmental stewardship, investing in society’s enhancement, good governance, transparency and fair labour standards are not just ways to make a company look better, they are ways to ensure that companies perform better. Furthermore, the profound impact that the corporate sector can have on its surrounding environment is no longer debated. Just by looking at the number of significant publications that have put the issue of socially responsible business on their front cover, it is clear that business can no longer stop at making as much money as possible as quickly as possible, nor can they hide their impact in a world where information is not only easily accessible, but also easily disseminated through social media. While reporting can be used to enhance a company’s image by disclosing elements such as how a company has invested in its community, at its core this is not what reporting is about. Sustainability Reporting is about RESPONSIBILITY – it’s about taking ownership of the negative impact that businesses have on the environment through operations and the positive impact that businesses can have by choosing to take environmental performance seriously. It is about choosing to be accountable to stakeholders and applying principles of transparency and good governance. Most importantly, it is about realizing that companies are also citizens that have a significant role to play in shaping the societies in which they exist. While this report does in fact demonstrate that the majority of publicly listed companies in the region report on sustainability on some level, demonstrating that basic awareness does exist, we have a long way to go before detailed sustainability reporting becomes mainstream practice. When sustainability reports in the region come to a point where they clearly demonstrate how the adoption of sustainability management has led to an increase in the value and performance of business, then we will know that this region is no longer short term focused, but rather it is striving to stay “ahead of the curve.”

Dina Sherif & Mohamed El-Kalla Founding Partners, Ahead of the Curve

Communicating Corporate Sustainability in the MENA Region

Sustainability & the Importance of Reporting Companies across the globe are moving towards the adoption of the different aspects of corporate social responsibility (CSR)/sustainability with regards to environmental, social, and governance performance. Shifting towards this approach of being stakeholder driven has been influenced by numerous factors ranging from consumer pressure to the corporate sector’s realization that sustainability does enhance operational processes, performance and bottom line, and that contributing to socioeconomic development is imperative to the growth of the private sector itself. Adopting sustainability by establishing sound governance systems that are engrained with the commitment to maximize overall stakeholder value; including shareholder value creation, social value creation, and environmental preservation; has been found to significantly enhance long-term corporate performance[1]. Moreover, sustainability management is enabling today’s corporate leaders to maximize economic value while simultaneously mitigating environmental impact and promoting social welfare; what are often referred to as a company’s triple bottom line[2].

enhancing employee loyalty and retention, and enhancing risk mitigation through the early detection of anticipated risks in multiple dimensions (including communities of operation, company processes, and the sustainability of resources needed to continue operations)[4]. Moreover, CSR/ sustainability reporting plays a significant role in maintaining accountability and transparency towards a company’s main stakeholders. By openly disclosing information about current sustainability performance; strengths and weaknesses included; companies are gaining the confidence of investors and clients alike[5]. Increasingly, investors are according more attention to integrated reporting and non-financial performance indicators prior to making investment decisions[6]. Hence, sustainability reporting and the resulting improvements in sustainability performance are facilitating investor confidence and companies’ access to capital[7].

CSR/Sustainability reporting significantly enhances sustainability performance; reporting enables companies identify their position regarding the different aspects of sustainability and establish more efficient decision making processes[3]. Other benefits of sustainability reporting include

As globalization increases, cross national and regional business is becoming more common and global value chains are becoming the norm. Corporate leaders across the globe are according more attention to the impact of outsourcing their production and services on their own sustainability and CSR performance. Increasingly, sourcing from and outsourcing to sustainable and responsible counterparts is becoming a priority[8]. Given the current global shift towards prioritizing sustainability, enhanced CSR performance

[1] Eccles, R. G., Ioannou, I., & Serafeim, G.. The Impact of Corporate Sustainability on

[4] Ibid.

Organizational Processes and Performance. Harvard Business School Working Pa-

[5] Ibid.

per Series 12-035, 2013 Retrieved from: http://www.hbs.edu/faculty/Publication%20

[6] Ibid; The Association of Chartered Certified Accountants. Understanding Inves-

Files/12-035_a3c1f5d8-452d-4b48-9a49-812424424cc2.pdf

tors: Directions for Corporate Reporting, 2013 Retrieved from: http://www.accaglob-

[2] Elkington, J. Cannibals with Forks: The triple bottom line of 21st Century Busi-

al.com/content/dam/acca/global/PDF-technical/financial-reporting/pol-afb-ui02.

ness, 1997. UK: Capstone.

pdf

[3] Ernst & Young LPP & Boston College Center for Corporate Citizenship. The Value

[7] Ernst & Young LPP & Boston College Center for Corporate Citizenship. The Value

of Sustainability Reporting, 2013 Retrieved from: http://www.ey.com/Publication/

of Sustainability Reporting, 2013. Retrieved from: http://www.ey.com/Publication/

vwLUAssets/ACM_BC/$FILE/1304-1061668_ACM_BC_Corporate_Center.pdf

Introduction

and reporting in the MENA region will be at the core of enhancing the competitiveness of the region’s private sector. Without according attention to their CSR performance and disclosure, MENA companies are decreasing their chances of integration in global supply and value chains.

demands for socioeconomic reform are at their peak, a strategic, socially responsible and sustainable private sector has become a necessity.

By aligning its strategies and operations with the realities and priorities of communities in which they operate, the private sector will be able to enhance From a broader perspective, both social and envi- the overall competitiveness of economies in which ronmental sustainability are playing a bigger role it exists; increasing the private sector’s chances of in the competitiveness of whole economies. In continuing to exist and thrive over the long term. light of the MENA region’s “Arab Spring,” global leaders have been re-assessing the accuracy of CSR/Sustainability reporting and disclosure is one the typical economic growth model[9]. Starting of the first and foremost steps the private sector can the year 2011, the World Economic Forum for take towards becoming a sustainable and thus globexample introduced the concept of sustainable ally competitive one. competitiveness and introduced a sustainability adjusted Global Competitiveness Index (GCI)[10]. The new index takes into consideration issues of social sustainability including equity in access to basic needs and services, the extent of informal economy, and youth unemployment among several others. It also considers issues of environmental sustainability including policies, resource use intensity and emission intensity. In short, the new index considers social and environmental sustainability as they relate to productivity and thus competitiveness in the long term[11]. In a region where youth unemployment rates are the highest in the world[12], 68% of the world’s base of the pyramid population reside; suffering social, economic and political marginalization[13]; and

[8] RobecoSAM & KPMG. The Sustainability Yearbook, 2013. Retrieved from: https://

[12] World Economic Forum. Addressing the 100 Million Youth Challenge: Perspectives

www.kpmg.com/BE/en/IssuesAndInsights/ArticlesPublications/Documents/sustain-

on Youth Employment in the Arab World in 2012, Retrieved from: http://www3.wefo-

ability-yearbook-2013.pdf

rum.org/docs/WEF_YouthEmployment_ArabWorld_Report_2012.pdf

[9] World Economic Forum. “Sustainable Competitiveness,” n.d. Retrieved from: http://

[13] El-Darwiche, B., Sharma, A. Singh, M. & Abdel Samad, R. (n.d.). Digitization in

www.weforum.org/content/pages/sustainable-competitiveness/

Emerging Economies Unleashing Opportunities at the Bottom of the Pyramid. Re-

[10] World Economic Forum. Global Competitiveness Report: 2013-2014 Full Data

trieved from: http://www.booz.com/media/file/BoozCo_Digitization-in-Emerging-

Edition, n.d. Retrieved from: http://www3.weforum.org/docs/WEF_GlobalCompeti-

Economies.pdf

tivenessReport_2013-14.pdf [11] Ibid.

Communicating Corporate Sustainability in the MENA Region

Methodology & Approach This report presents research findings from a study conducted on the current state of sustainability reporting among stock-listed companies in the MENA region. Sustainability reports were used as the main source of information and were analyzed through desk research. The aim of the study is to identify the current status of sustainability report-

ing across the MENA region, as well as identify the most advanced countries and companies in this regard. The study is also intended to act as a basis for further understanding and activity planning for enhanced sustainability practice in the region. The study utilized a clear and systemic methodology, which was comprised of the following phases:

A SAMPLE SELECTION A total sample size of 170 companies was selected based on a set of criteria; 10 companies were selected from a total 17 countries in the MENA region. The criteria for selection were based on a purposive sampling method and were as follows: Listed Security: on the stock exchange (of the country of origin) Size: largest size listed companies (according to market capitalization figures when available or 3-month traded volume

data) in the year 2012. Sectors: A purposive representation of various industry sectors, if the 10 largest companies for a country do not represent a distribution of sectors agreed upon by the GIZ and ATC. With that in mind, sample adjustments aimed to ensure relevant representation of industry sectors and to avoid skews towards one or two large sectors in our final sample.

B MATERIALITY ANALYSIS As part of the research preparation stage of the study, a materiality analysis was conducted to accomplish the following goals: 1) to identify sustainability topics and information categories that should be considered for further study (in phase (C) of the methodology); and 2) to identify key sustainability challenges in the MENA region. Using secondary research and through a desk review of online and published literature, over 110 references relevant to the MENA region and sustainability were reviewed. Main references included: news and research articles, working papers, development reports and guidelines, online discussion groups/posts, blogs, national government development plans/

policy papers and other strategic reports. Examples of sources used for such references are: national governments, academic institutions, civil society organisations, industry associations and MENA-based sustainable development associations. At this stage, published information sourced by companies (website posts, sustainability reports, press releases) was not included. Sources published during the period from Y2011 to Y2013, and documents in English, Arabic and French were included in the review. Information gathered from the desk review was audited and a list of material sustainability topics were identified per sector and country for the 17 MENA markets included in the study.

C COMPANY INFORMATION COLLECTION/ANALYSIS The study utilized sustainability reports as the main source of information to review selected companiesâ&#x20AC;&#x2122; sustainability-related activities. For consistency, desk research at this phase was also conducted on reports published between the period 2011-2013, in English, Arabic and French. A database of company information was built by collecting and analyzing data points on the 170 MENA companies in our final sample. Data compiled in the database included: reporting formats, usage of international

reporting guidelines, and web links to online reports and company contact details. Qualitative information was also listed in the database including: priority sustainability topics covered by companies (mentioned in sustainability reports, websites, annual reports, and in other online resources, etc.), existing (or non-existing) channels for stakeholder engagement regarding sustainability performance and approaches towards sustainability management within the company.

D REPORTING Analyzing data gathered as part of phase (C) of the methodology, and synthesizing findings into this report. Unless otherwise stated, all charts and information in this report were sourced from data collected as part of this study using a final sample size base of 170 MENA-based companies. Small sample bases (sample cells of less than 30) are identified using the (*) symbol on charts

throughout the report. Finally, to enhance our analysis at the reporting stage, findings from the earlier materiality analysis task of the study (as part of phase (B) of the methodology) provided a benchmark against which to compare how companiesâ&#x20AC;&#x2122; business strategy and value-creation efforts are aligned to the wider country and regional MENA context.

Introduction

COMPARITIVE TRENDS IN SUSTAINABILITY REPORTING IN THE MENA REGION

Communicating Corporate Sustainability in the MENA Region

Patterns of Reporting The current report on MENA-based listed companies’ communication of sustainability performance captured prevalent patterns in reporting. The below sections outline main findings on how reporting methods differed among companies and across countries, sectors and the size of firms.

General An overview of reporting trends shows that a large proportion of companies that are publicly listed in the MENA region are communicating their sustainability practices to the outside world through what has come to be known as sustainability reporting. Trends also indicate that companies reporting on their sustainability performance are differentiated by the relevance, extent and structure of the information they publish.

CHART 1: Overview of Reporting Trends Among Companies

Extensive Reporters

Brief Reporters

Non-reporters

Base: All companies (170)

40 percent of companies surveyed, can be described as ‘brief reporters’ who have referenced basic, or relevant, non-data driven (or non-metric) information about their corporate social responsibility or sustainability. These firms state their affiliation with sustainable development and/or CSR in ranging degrees, which vary from publishing a statement of intent in their corporate mission to lengthier descriptions of their CSR activities. Brief Reporters also tend to use similar communication channels, mainly sub-sections of their

annual report and/or corporate website to inform stakeholders of their sustainability and responsibility activities. Other characteristics of brief reporters are lower incidences of strategic involvement with sustainability and the use of common frameworks or standards when communicating the social, environmental and economic impact of the company’s operations. Most commonly, companies post updates concerning their acquisition of environmental, health and safety certification seals such as International Organization for Standardization (ISO), Occupational Health and Safety Advisory Services (OHSAS) and Health, Safety, Environment and Quality (HSEQ) and other integrated management system certification through their websites. A smaller segment of nearly 20 percent of companies studied are more ‘extensive reporters’ publishing either full stand-alone or integrated reports dedicated to analyzing their company’s sustainability issues. These issues are also embraced across the communication of the company’s mission, operations, products and governance developments, seen on their websites. Extensive reporters are an active segment and demonstrate higher immersion with sustainability and corporate social responsibility. They are more likely to use reporting tools and guidelines. They are also distinguished by their tendency to communicate across multiple channels in an integrated way. Companies are independently making decisions to publish their initial rounds of sustainability reports, and most companies are at the stage of recognizing the scope of their corporate social responsibility by identifying and responding to stakeholders’ expectations. Some companies are creating frameworks

Comparitive Trends in Sustainability Reporting in the MENA Region

CHART 2: Reporting Trends by Country Extensive Reporters

Brief Reporters

Non-Reporters

UAE Morocco Kuwait

19%

Egypt Lebanon Oman

40%

Jordan 41%

Palestine KSA Bahrain Algeria Qatar Iran

Tunisia Syria Libya Iraq 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Base: All companies (170)

or committing to formal reporting guidelines to enhance their reporting efforts. Best practice cases show that integrated reporting can provide a comprehensive view of a companyâ&#x20AC;&#x2122;s short-, mediumand long-term value and performance. [14]

[14] From the Global Initiative for Sustainability Ratings (GISR) Principles, accessed at http://ratesustainability.org/standards/principles/

A remaining 41 percent of listed companies that were surveyed are non-reporters, or provide no information on sustainability or corporate social responsibility through any communication channel, or have not yet established a website.

Communicating Corporate Sustainability in the MENA Region

CASE STUDY: Palestine, Pharmaceuticals Birzeit Pharmaceutical Company is Palestineâ&#x20AC;&#x2122;s leading manufacturer of generic medicines, producing over 160 products, based in Ramallah. Their facilities total an area of 15,000 square meters of modern production lines according to state-of-the-art technology. Sustainability as a Guide Birzeit Pharmaceutical Companyâ&#x20AC;&#x2122;s efforts to achieve quality standard certificates such as Current Good Manufacturing Practices (CGMP) and ISO quality systems, as well as educating and training staff are among the many strategic investments the company has made. While there remains room to improve their rate of reporting and providing data and metrics on their sustainability performance, they have been successful in approaching and identifying sustainability priority areas. Through an organic approach and policies, the company has been selecting their corporate social responsibility activities and practices based on a social priority to serve the wellbeing of people, mainly employees and community-members. They innately believe that sustainability is the measure for business success, and seek to mirror that in their communal values, culture, economy and growth. Their convictions have led to the identification of material issues in, for example: safety and health, diversity and gender equality, living conditions and employability, and particularly in environmental protection. They report on their environmental dimension of sustainability performance as a management of risks and opportunities and have launched initiatives in pharmaceutical waste control from their manufacturing processes. BirZeit also addressed material water drainage issues, where the company assesses the amounts of water consumed monthly, and has built a system for the reuse of about 1000 litres of treated water per hour. Other priorities include managing solid waste from operations, recycling, proper gas usage, energy efficiency and introducing a green car policy to improve fuel efficiency and reducing greenhouse gas emissions.

Countries These different types of reporting trends among companies were tracked across the 17 MENA countries surveyed. Just fewer than 20 percent of companies published a stand-alone or integrated report on sustainability issues specifically. Chart 2 illustrates Morocco and the UAE, as well as Kuwait as lead countries, followed by Egypt and Lebanon, in terms of corporate readiness and investment in structured and guided sustainability reporting. Looking at brief reporters, companies based in Egypt, Palestine, Iran and KSA tend to disclose shorter but very relevant information in higher frequency, followed by smaller markets such as Lebanon and Jordan. While reporting in Syria and Oman may not be as frequent when companies do report it is in more detail and structure. The Bir Zeit Pharmaceutical company based in Palestine has been developing its business over the years by applying principles of sustainability in their management approach.

Best practice cases show that integrated reporting can provide a comprehensive view of a companyâ&#x20AC;&#x2122;s short-, medium- and longterm value and performance.

Social Responsibility Report 2010 Reporting frameworks: - None Employees: 298 Local company

Comparitive Trends in Sustainability Reporting in the Introduction MENA Region

CHART 3: Countries Reporting No Information (By Country) Percentage of Companies

Egypt UAE Palestine Morocco Lebanon Oman Kuwait KSA Jordan Iran Bahrain Algeria Qatar Tunisia Syria Libya Iraq

20%

40%

60%

80%

100%

Base: All companies (170)

Countries lagging in sustainability reporting are panies based in oil-wealthy stable economies, locations that face considerable political or organ- namely Qatar and Algeria, lagged significantly in isational challenges to effective governance and transparency and reporting. transparency, namely Iraq, Libya and Syria, as well as Oil & Gas wealthy Qatar and Algeria [see Chart 3]. More so, a relationship between the extent of the Political instability and conflict may appear to be a development of the countryâ&#x20AC;&#x2122;s securities market main cause for lower incidences and frequency of or exchange systems and companiesâ&#x20AC;&#x2122; reporting reporting by businesses in MENA countries such activity was noted, by comparing the growth of as Iraq, Libya, Tunisia and Syria. However, contra- listed companies on respective country exchanges ry to what one may have assumed about the region, and the national focus on capital market governour research found that 80 percent of companies ance recorded in our materiality analysis of MENA in Lebanon, 70 percent of companies in Palestine sustainability issues. and a third of companies in Syria provided brief As examples, markets in Algeria and Tunisia have reports of their corporate social responsibility pro- been slow to opening to foreign investment and gress as wars continue in the Levant sub-region of privatizing public firms, leading to a partitioned the MENA where they operate. In addition, com- and less communicative business sector. While on

Communicating Corporate Sustainability in the MENA Region

the other hand, the United Arab Emirates (UAE) market has established three stock markets and governance authorities along with business associations that have had a positive influence on companiesâ&#x20AC;&#x2122; awareness of transparency and sustainability requirements at both local and sub-regional levels. [15]

Egypt provides another example: the shift in national focus towards governance, and establishment of entities such as the Egyptian Institute of Directors (EIOD) and the Egyptian Corporate Responsibility Center (ECRC) alongside the introduction of an ESG index into the local stock exchange was reflected in a higher propensity towards disclosure among companies [see Chart 3]. The above observations imply that higher levels of national priority placed on corporate governance and having institutions implement policies in this regard works effectively in increasing the rate of corporate reporting.

[15] Accountant Middle East, â&#x20AC;&#x153;Resetting the green buttonâ&#x20AC;?, September 12 2013.

Comparitive Trends in Sustainability Reporting in the Introduction MENA Region

Developments in Building MENA Capital Markets The Libyan Stock Market (LSM) reopened, for the first time since the fall of the Gaddafi regime, in March 2012 (Reuters, 04/03/2013). The LSM currently has 10 listed companies’ securities on their exchange. Tunisia’s post-revolution interim government is directing well-funded public sector companies operating in competitive sectors to list themselves on the Bourse de Tunis. By raising their own capital through stock market listing, the government aims to alleviate state budgets and to ensure more transparent management (All Africa, 1/11/2012). First established in 1993, the Algerian Stock Exchange has been slow to launch mainly due to low liquidity in the economy as well as regulatory restrictions on investment. By making the stock market more accessible to foreign investment, the exchange projects companies listed on the Algeria Stock Exchange to grow from 4 to between 40 to 50 companies over the next 5 years, at a rate of at least 8 entities per year (Reuters, 21/11/2013). There are three stock exchanges established in the United Arab Emirates (UAE). The Dubai Financial Market (DFM) the Abu Dhabi Securities Exchange, and the NASDAQ Dubai which has 10 listed companies. The DFM, which runs securities trading in Dubai, made a net profit of $22.5 million in the three months to Sept. 30 2013. (Reuters, 04/11/2013). The role of Islamic-based finance is growing in the MENA region, particularly being led by GCC capital markets such as the UAE and Qatar. Sharia-compliant investment instruments (such as bonds “sukuks”) are expected to fund both planned government infrastructure investment as well as corporate sector growth in the region’s economic outlook. Some MENA governments are promoting the issuance of sukuk for projects related to clean technology, renewable energy and climate change solutions also called “Green Sukuks” (Hawkamah, 2012).

Communicating Corporate Sustainability in the MENA Region

TABLE 1: Number of Listed Companies on Securities Exchanges in MENA Region MENA Securities Markets

Listed Companies

Iran

Tehran Stock Exchange (TSE)

314

Egypt

The Egyptian Exchange (EGX)

212

Kuwait

Kuwait Stock Exchange (KSE)

210

Saudi Arabia

Saudi Stock Exchange (Tadawul)

163

UAE

Dubai Financial Market (DFM) Abu Dhabi Securities Exchange (ADX) NASDAQ Dubai

65 67 10

Oman

Muscat Stock Exchange

124

Jordan

Amman Stock Exchange (ASE)

120

Iraq

Iraq Stock Exchange

Morocco

Casablanca Stock Exchange

Tunisia

Bourse de Tunis

Palestine

Palestine Exchange (PEX)

Bahrain

Bahrain Stock Exchange (BSE)

Qatar

Doha Stock Market (DSM)

Syria

Damascus Securities Exchange

Lebanon

Beirut Stock Exchange

Libya

Libyan Stock Market (LSM)

Algeria

Algeria Stock Exchange

Source: Data on listed companies posted on respective stock exchange website. Data for Algeria from Reuters news.

There are over 1,688 companies listed on stock exchanges across the MENA markets surveyed.

Comparitive Trends in Sustainability Reporting in the MENA Region Introduction

Sectors Efforts towards reporting on corporate sustainability also vary by business sector. Looking at extensive reporting trends, technology/telecommunication, chemicals and basic resources sectors are noticeably represented [see Chart 4]. This is partly related to their large to medium market cap size and their substantial economic significance to the formal economy. Banking, as the most prominent sector amongst listed companies across MENA markets, is also represented by about 28 percent of firms reporting extensively. However, compared to the telecommunication industry for instance, the banking and financial services sectors overall are weighed down by high incidences of non-reporting. As a cluster, the financial sector, which includes banking, financial services and insurance, tends to fall behind others in reporting. Nearly 70 percent of financial services firms, and almost 40 percent of banks surveyed, communicate limited to no information on sustainability issues. Due to the privacy and confidentiality embedded within the culture of the finance sector, specifically banking and private equity, it will take time to introduce a culture of transparency and disclosure within the sector. The finance industry in general tends to also be under less public scrutiny as their impact is most pronounced through their investments rather than high-exposure direct operations, such as in mining or basic resources industries.

[16] Saidi, N. “The Arab Spring emphasizes better corporate governance of stateowned enterprises”, 2012. [17] OECD, “Policy brief on improving corporate governance of banks in the MENA region.” 2009.

Characteristic to the region, a fundamental challenge to implementing common corporate governance frameworks to conglomerates and to banks specifically relate to policies of ownership, mainly family and state-owned. The majority of MENA-based banks are federal/municipal entities or state-owned, where leadership tends to be scattered across different ministries or government bodies[16], operating without unified governance policies or centralized reporting. The substantial role of family-owned banks (publicly listed) in the region may also present barriers, as non-family shareholders tend to hold lower stakes and do not participate in the banks’ governance[17]. Following the financial sector, the construction (and real estate) and as well as sectors related to the food industry that are characterized as significant contributors to MENA equity markets also lag behind in their degree of sustainability and governance reporting [see Chart 5], An interesting finding considering the industrial magnitude of these and their major importance to the region’s economy.

Communicating Corporate Sustainability in the MENA Region

CHART 4: Reporting Trends (By Sector) Brief Reporters

Extensive Reporters

Non-reporters

Technology Chemicals Basic Resources Telecommunications Utilities Health Care Banks Food Processing Construction Transportation Real Estate Financial Services Mining Retail Oil & Gas Travel & Tourism Industrial Goods Agriculture Insurance Media Education Automotive %

10%

20%

30%

40%

50% 11%60%

Base: All companies (170)

70%

80%

90%

100%

Comparitive Trends in Sustainability Reporting in the Introduction MENA Region

CHART 5: Companies Reporting No Information (By Sector) No Information Technology Mining Chemicals Telecom Retail Oil & Gas Basic Resources Utilities Real Estate Banks Construction Travel & Tourism Industrial Goods Food Processing Transportation Health Care Agriculture Financial Services Insurance Education Services Automotive

20%

40%

60%

Base: All companies (170)

80%

100%

Communicating Corporate Sustainability in the MENA Region

Operating in the food and dairy industry, Groupe Centrale Laitiere based in Morocco offers some best practices to recognising corporate social responsibility along a complex value chain. Overall, companies operating in traditionally prominent economic sectors such as Transportation, Oil & Gas and Tourism demonstrate an inclination towards limited and brief reporting on their company operations. Similarly, a conflict of interests based in companies’ ownership structure stagnates greater progress in corporate governance and sustainability performance. For example, publicly listed companies managing public resources, such as in the petroleum and natural gas industries or national aviation companies, tend to be large state-owned enterprises where management is less autonomous from political and bureaucratic priorities.[18] The conglomerate SABIC is a publicly-listed stateowned enterprise which offers a successful case of engaging stakeholders and learning about their expectations for greater disclosure from the company.

Social Responsibility Report 2011 First social responsibility report Reporting frameworks: GRI 3.0 Employees: 4,000 Local Company

[18] Saidi, N. “The Arab Spring emphasizes better corporate governance of stateowned enterprises”, 2012.

CASE STUDY: Morocco, Food & Beverages Groupe Centrale Laitiere is the first Moroccan producer of packaged milk and fresh dairy products, in 2012, the company’s majority shareholder became the Danone Group. Their business vision rests on a social dimension to deliver nutrition and health through high quality food, to as many customers

possible. Recognizing Stakeholders along the Value Chain Food manufacturing involves an intricate value chain with operations that span many sectors including agriculture, food processing, logistics, finance and technology. Through their process of social responsibility reporting, Groupe Centrale Laitiere states its first breakthrough as the recognition of different stakeholders at each step of the company’s value chain. By accounting the needs of their stakeholders and enforcing their interests and fundamental rights, Groupe Centrale Laitiere had found the appropriate definition for their corporate social responsibilities. The company maintains dialogue with their stakeholders starting from their supply chain partners of 120,000 local milk producers all the way to the end-consumer. They credit the process of sustainable development for realizing unaccounted-for value along the chain that has led to increased capacity to their core business, to produce quality food consistently and responsibly. As the company progresses in its social responsibility, Groupe Centrale Laitière plays a strategic role in Morocco’s social and economic development, “providing steady incomes to hundreds of thousands of Moroccans working on farms, in dairy cooperatives and in food processing industries.”

Comparitive Trends in Sustainability Reporting in the Introduction MENA Region

CASE STUDY: Saudi Arabia, Chemicals SABIC, a state-owned enterprise, is a global leader in the petrochemical industry, involved in the production of chemicals, polymers, plastics, metals and fertilizers. The company mission is “to provide quality products and services responsibly through innovation, learning, collaboration and operational excellence, while sustaining maximum value for [their] stakeholders.” Stakeholder Engagement and Kicking off the Materiality Process SABIC presents best practices while developing their own approach to sustainability management, which the company describes as a continuous journey. SABIC considers the publication of their first sustainability report as a crucial milestone requiring public discussions of their most material sustainability issues, and seeking feedback on their reporting from a relevant audience. Their sustainability report was downloaded over 15,000 times and received hundreds of comments via their website. Preparing their first report was a crucial steppingstone, enhanced dialogue with its stakeholders provided a rare opportunity to reflect on sustainability priorities and vision. Following direction from external sustainability experts (KPMG, BSR, GreenOrder and others) on their reporting strategy, SABIC then, for the first time, developed an extensive stakeholder map, which included more than 100 entities (NGOs, industry associations, CSOs etc.) across key regions. Giving priority to feedback from stakeholders most aware and involved with the company, a list of material issues guides their sustainability reporting process. SABIC’s current sustainability report answers stakeholders’ feedback and includes responses to concerns, particularly towards providing more data and metrics on their sustainability performance. The company views its compliance as a demonstration of commitment to sustainable management of resources. Other issues of concern to stakeholders are: more disclosure of critical issues (human rights, gender diversity, supply chain, biodiversity), higher collaboration and innovation in addressing sustainability goals.

Sustainability Report 2012 Second annual sustainability report Reporting frameworks: GRI 3.1 (Application Level B, self-declared); UNGC member 2012 (this report is their official UNGC Communication on Progress). Employees: 40,000 Global operations: 80+ countries

Communicating Corporate Sustainability in the MENA Region

CASE STUDY: Egypt, Technology/ Telecommunications Orascom Telecom is a leading global telecommunications company operating GSM networks in high growth markets in the MENA region and in Asia. Following Orascom Telecom Holding’s parent company Wind Telecom’s merger with VimpelCom Ltd., it is now the sixth-largest subscriber-based telecommunications company worldwide. Coordinating Materiality among Large (mega) Multinational Corporations Identifying and then reporting on materiality issues can be a challenge for very large multinational companies whose operations span across many countries and several continents. Especially so, as in Orascom Telecom’s recent case, when the merger of two large companies and their internal operations and processes is occurring. A decentralized approach to CSR practices has helped in implementing environmental, social, and governance (ESG) initiatives recommended on group level across countries, so that ESG sustainability management and initiatives can be tailored to meet local market needs. The mother company’s CSR team plays a guiding role ensuring initiatives are of thematic relevance to both the telecommunications industry and communities. For example, on the technology dimension, their core business, operating companies are responsible for delivering results on their commitments towards energy efficiency as agreed in partnership with the holding group’s energy efficiency reduction targets. At an implementation stage, tactical decisions are left to the company’s local CSR practitioners in different markets where they operate, because they hold a better understanding of stakeholder needs in their country. As seen in other cases of best practices in sustainability management in the MENA region, Orascom Telecom Holding shows high CEO and top management’s involvement and support on all CSR activities.

[19] Straight average of market cap size data of 140 companies

Size The average size of companies in the sample in terms of market capitalization is $ 4.21 bn[19] and trends show a positive correlation between increased company size and rates of reporting. Chart 6 illustrates 43 percent of large market cap (over $4 bn) and a quarter of medium market cap companies are full reporters, compared to 17 percent and 3 percent of small and micro size companies respectively. While large cap companies lead in extensive reporting there’s a large variance in disclosure methods by different sectors among large companies. Large banks and telecommunication companies are beginning to communicate on sustainability more fully. And while 40 percent of companies operating in the Financial Services and a third of Oil and Gas companies in our sample are large cap firms, their sectors are not represented among extensive reporters.

Sustainability Report 2010/2011 Third sustainability report Reporting frameworks: GRI (Application Level B), UNGC member (2008), MDGs. Employees: 12,082 Global operations: 7 countries

Comparitive Trends in Sustainability Reporting in the Introduction MENA Region

A few MENA-based companies with global operations show experience in managing sustainability concerns across markets as in the case of Orascom Telecom Holding. Brief reporting is more frequent among medium and small cap companies [see Chart 6] and a similar sectoral analysis shows medium and small cap companies operating in construction, real estate and retail sectors tend to drive more basic reporting currently [see chart 7] compared to other sectors.Micro cap companies (under $ 100 million) are seen to lag significantly in reporting compared to other segments. Over two-thirds of micro-companies do not report on sustainability issues. A sectoral profile shows that most micro cap firms in our sample operate in the financial, construction and food processing industries [see chart 7]. Relatively smaller, but influential, sectors such as Education and Media are more mute on sustain-

ability reporting in the MENA region. Finally, as an outlier case, ascertaining the market cap data, and sustainability reports of companies operating in the Agriculture sector was relatively challenging. A rare case, Groupe Elloumi is a small-size company operating in the agriculture sector based in Tunisia, it recognises that its industry’s sustainability depends on the quality and safety of their production and is investing in research and development along those objectives. The company has also identified ‘cleaner production’ as another area of materiality where they are creating policies to reduce their operations’ consumption of resources and ensure best practice in waste management.[20]

CHART 6: Company Size Segments (By Reporting Trends) Extensive Reporters

Brief Reporters

Large Cap ($4 billion +)

36 %

43 %

21%

Medium Cap ($1.0 to 3.9 billion

44 %

26 %

30 %

Small % Cap ($100,000 to 900,000)

17%

50 %

33 %

% Cap (Less than $100,000) Micro

3% 29 %

68 %

Base: All companies with market cap data (140)

[20] Groupe Elloumi company website, accessed December 5 2013.

Non-Reporters

Communicating Corporate Sustainability in the MENA Region

CHART 7: Company Size vs. Sector Chart 7 shows the distribution of company market cap size by sectors in the sample of companies surveyed.

Large Cap

Telecommunications

8 4

Financial Services

Food Processing Oil & Gas Real Estate Utilities Transportation

1 2

Retail

4 4

2 1

3 1

2 2 11 2 1 2 1 3 11 2 1 2 3

2 2

1 3 1 2

Basic Resources

1111

Trade & Tourism

2 2

Agriculture

2 2 7

2 2 5

Health Care Insurance

(Less than $100,000)

Micro Cap

($100,000 to $900,000)

($1.0 to 3.9 billion)

Banks

Construction

Small Cap

Medium Cap

($4 billion +)

111

Mining

Chemicals

Automotive

Technology

Industrial Goods

1 Media 1

Education

Base: All companies (170)

Unknown Size

Introduction

AREAS OF MATERIALITY

Communicating Corporate Sustainability in the MENA Region

An identification of the most prominent sustainability challenges in the MENA region, raised by sources such as the media, civil society organizations and national governments[21], is used as context to understanding the sustainability issues being covered by companies. This analysis indicates the top sustainability issues by country in the MENA region; countries were found to share common areas of materiality. The top three thematic categories identified are: Governance, Water management and Energy solutions.

tice stemming from weak political and economic governance[22]. Other specific governance issues identified were for example land governance[23], a top priority sustainability issue particular to Middle Eastern countries such as Palestine and Iraq[24]. Moreover, efforts being made towards greater public budgetary management and transparency were found to be of significance such as in Morocco[25], where there is a focus on public disclosure by the government to keep citizens informed and provide accountability on the spending of public funds and budgetary policies.

Governance

Change in the system of distribution of basic goods and services, traditionally provided by state-owned enterprises, is a dimension of social justice that MENA populations seek. Too often, natural resources and national assets are accumulated by special interests, pushing-out citizens’ reach to public goods[26]. In addressing corruption and poor public sector management, steps towards strengthening municipal structures and citizen engagement are high priority governance principles for sustainability. In addition, state control of the telecommunications sector, print and other media is hindering society’s voice, and in turn, the sustainability of MENA countries as operating environments. [27] In Bahrain for example, political strength and sustainability were rated on a decreasing trend by risk assessment tools[28] due to limitations placed on public expression, such as a government decree obligating all telecommunications companies and internet service providers to block over 60 speci-

The need for enhanced governance is a prominent thematic issue across MENA region countries. Governance issues ranging from national political capacity building to more specific sustainability concerns related to land use and resource allocation were identified. Corporate governance sustainability issues most commonly cited were: transparency, disclosure, accountability and sustainable leadership (Board of Directors and management). Progress in creating and implementing rules-based frameworks are frequently discussed in this area. At a national level, research shows how the events and demands of the Arab Uprisings have highlighted political governance capacities as crucial to sustainability. Waves of protests in directlyaffected countries, as well as across the region, highlight the public’s concern with social jus[21] A materiality analysis covering over 110 secondary research sources for

rocco’s governance reform.” 2013

this report

[26] Saidi, N. “The Arab Spring emphasizes better corporate governance of

[22] Saidi, N. “The Arab Spring emphasizes better corporate governance of

state-owned enterprises”, 2012

[27] Ibid.

[23] landgovernance.org. “Palestinian Territories: Food security and land gov-

[28] The World Energy Council, Sustainability Index 2013 – Bahrain, at: http://

ernance factsheet.” 2012.

www.worldenergy.org/data/sustainability-index

[24] US Institute of Peace, “Land, property and the challenge of return for Iraq’s

[29] Bahrain Media Sustainability Index (MSI), IREX website, accessed Novem-

displaced.”

ber 19 2013.

[25] The World Bank, “Transparency and open budget, the true stakes in Mo-

[30] CIPE, IFC. “Advancing corporate governance in the MENA.” February 2011.

Areas of Materiality Introduction

fied websites due to their political orientation[29]. Stakeholders, usually in the form of national governments and financial industry authorities, are calling upon companies to deliver higher levels of governance as a part of their corporate responsibility. Implementing a common framework by the type of ownership base the company has, whether fully or partially family- or state-owned, is a characteristic challenge to corporate governance in the MENA region. In this respect, separating ownership or national political interests from the company’s sustainability and performance are key corporate governance hurdles, particularly among banks and large firms.[30] Expectations for improved governance include more transparency, accountability and disclosure of company structures and procedures. Reporting on companies’ sustainability performance is an increasingly important priority in corporate governance.

tion of water resources and its operations’ impact on water quality. A common barrier to pricing water, in order to encourage efficiencies, is linked to government policies, which subsidize utilities.[32] In relation to these issues, the cost-benefit analysis of water desalination as a sustainable source of water is often evaluated. Water sustainability issues related to agriculture and food security are popular themes in Egypt[33], Palestine and Lebanon[34]. Developing irrigation systems to cater to sustainable water use and desert-appropriate irrigation technology is a water sustainability trend in the MENA region.

Jordan[35] and Syria in particular are defined as among the worst drying countries in the region, experiencing significant droughts. Water mismanagement due to lack of governance or technology exacerbate these challenges[36]. As corporate citizens, companies are expected to contribute their share in mitigating consumption of water and othWater Management er natural resources in its’ operational production Water sustainability issues are most inter-related and procedures. Going beyond conservation, the to other material themes such as political stabil- business sector can be a source of technological ity/governance, health, energy, technology and or managerial solutions to satisfy a range of critiurban development. In global comparison, the cal needs under the sustainability theme of water MENA region is more severely affected by water management. scarcity than any other part of the world[31]. This, in turn, leads to drastic social, political and economic consequences. Water conservation and managing Energy Solutions existing water supply, particularly among Arabian Energy management and production are vital maGulf countries as a sub-region, are current action teriality themes across the MENA region for comareas, as well as monitoring industrial consump- panies, governments and citizens alike. Linked [31] Hawkamah.org, “Harnessing green sukuk for sustainable development in the MENA.” July 11 2012. [32] Germanwatch.org. “Desertec and Human development at the local level in the MENA region.” October 2011. [33] Sustainable Agriculture Review, “Sustainable Agriculture and climate changes in Egypt.” 2013. [34] Ecomena.org. “The Agriculture scenario in the MENA.” April 15 2013. [35] USAID Jordan, “Jordan country development cooperation strategy 20132017.”

[36] CNN Blog, “Why water is key to Syria conflict.” September 17 2013.

Communicating Corporate Sustainability in the MENA Region

to climate change through emissions, urban air pollution and industry, the search for more sustainable energy sources concern many countries. Energy conservation, similar to the water utilities sector, and efficiency are also platforms for sustainability in many countries. Diversifying energy sources and strategies to develop power-generating alternatives by looking into solar, wind or biogas power are at the forefront of materiality as well.[37] Studying the energy costs of current or potential sustainable solutions to other sustainability themes, such as water scarcity arises, in this domain. Government programmes or regulations to develop the energy sector are a current priority across most MENA countries[38]. National policies are powerful catalysts for action on the sustainability issue of renewable energy. As a case, Jordan will be the first country in the MENA region to adopt an energy policy similar to feed-in tariffs, which have made European countries like Germany and Spain leaders in renewable energy. Private companies will be able to directly submit energy proposals to build wind, solar, biomass and biogas projects with a guaranteed tariff for the power they produce as incentive[39]. Industrial production’s impact on energy consumption and sustainability is a main area of concern among companies themselves and national governments. The environmental impacts of energy production on protected or bio-diverse areas are also being highlighted by various groups of

stakeholders[40]. These realities are driving corporate innovation to explore new approaches and technology, such as waste-to-energy solutions[41].

Sustainable Building Practices The MENA region is currently experiencing rapid population and urbanization growth, accompanied by increasing demand for housing and urban infrastructure. Given limited available land for urban growth[42] in many MENA countries, means that to cater to these needs requires a sustainable approach. Sustainability solutions under this theme range from sustainable urban planning issues, implementing national and international green building standards and participatory approaches to urban development.[43] Aiming at affordability and ensuring fairness in access to housing and public space, governments must increasingly engage its’ citizens and tackle the distribution of land ownership and property rights. Other regional urban development themes that seek an integral approach that strengthen municipal structures include the promotion of local economic development, urban environmental protection and management of resources and the usage and new interpretation of cultural heritage.[44] Real estate industry leaders outline the most material sustainable building challenges which cause the MENA region to fall behind globally in its’ reaction to the environmental, economic and social sustainability of the built environment.[45] They

[37] International Council for Science, “Future Earth regional workshop for the

[42] TU Berlin, “Good governance and sustainability in residential land admin-

MENA.” June 3 2013.

istration in Muscat Oman.” 2012.

[38] The United Nations Environment Programme (UNEP), “Global outlook on

[43] Nour, AM. “Challenges and advantages of community participation as an

sustainable consumption and production policies.” 2012.

approach for sustainable urban development in Egypt.” Canadian Center of Sci-

[39] Ratcliffe, Verity. “Jordan leads on energy tariffs.” The National, December

ence and Education, February 2011.

15 2013.

[44] GTZ, “Integrated urban development in the Mediterranean and Middle

[40] The United Nations Development Programme (UNDP), “Environmental

East region.”

sustainability issues highlighted in national reports to Rio+20” March 2013.

[45] Kelly, D. “MENA region faces unique sustainability challenges.” The Fifth

[41] Ecomena.org. “Waste-to-Energy Outlook for the Middle East.” Jan 31 2013.

Estate, July 1 2013.

Areas Introduction of Materiality

consider the main barriers to be a lack of legislation to enforce change, absent financial incentive to command a premium for building sustainably for suppliers, and finally a limited awareness of environmental issues among consumers linked to state subsidies of energy, water and waste disposal.

Sustainable Finance The roles of finance and banks are frequently cited in relation to sustainability on ESG dimensions at a national level. Responsible banking is expected to expand access to capital among entrepreneurs and SMEs who venture into the economy with sustainable or social business models.[46] Civil society institutions raise sustainable finance issues such as microfinance and other financial innovation tools to increase financial inclusion. Within the financial services, the insurance industry is seen as integral to a key economic region such as the MENA as it is linked to sustainable development[47] through its roots in risk management. In some MENA countries the urgent need to finance the rise of clean power, energy efficiency or carbon reduction projects has led economists to look to changing capital strategies. For example, the use of Shariah-compliant capital market financing instruments such as ”green sukuk[48]” to meet the investment requirements of Islamiccompliant investors from the GCC, Asia and global institutional investors aware of the benefits of

[46] Egyptian Institute of Directors, “Corporate social responsibility and corporate citizenship in the Arab world.” November 2012. [47] UNEP Finance Initiative (UNEPFI), “UNEP FI Principles for sustainable insurance consultation heads to the MENA.” September 18-19 2011. [48] Bonds [49] Saidi, N. “Harnessing Green Sukuk for Sustainable Development in MENA.” July 11 2012. Hawkamah, 2012. [50] Ibid.

sustainable investment.[49] Still in its early stages, the Clean Energy Business Council of the MENA (CEBC) in partnership with the Climate Bonds Initiative and the Gulf Bond and Sukuk association have launched a Green Sukuk Working Group to direct expertise and best practices towards developing green sukuk products along international industry standards. Saudi Arabia is expected to invest over USD 100 billion in clean energy, with the UAE and other MENA countries following suit over the next 10 years, presenting many viable projects to attract sukuk investors.[50]

Communicating Corporate Sustainability in the MENA Region

TABLE 2.1: Priority Sustainability Issues

Finance Governance: Transparency, Integrated Reporting Access to Capital: SMEs, entrepreneurs, green/social business (economic development, responsible banking Poverty, Financial Inclusion, Housing, Microfinance Risk Management & Insurance Inadequate Financial Aid, Donations, Charity

UAE

Land Ownership & Property Rights

TUNISIA

Green Design: Standards, Adaptation

SYRIA

Sustainable Urban: Standards, Affordability, Services

QATAR

Infrastructure Service Delivery: Sanitation, Transport

PALESTINE

Urban & Real Estate Development

OMAN

Energy Subsidies, Pricing Utilities

MOROCCO

Energy Supply & Production, R&D renewal alternative

LIBYA

Energy Energy Management: Efficiency & Consumption

LEBANON

Irrigation, Desert-Appropriate Water Technology Alternative Sources: Re-use, Recycling, Desalination

KUWAIT

Improving Water Quality

KSA

Scarcity: Management, Conservation, Consumption, Pricing

JORDAN

Water Management

IRAQ

General: Transparency, Information, Accountability

IRAN

Corporate Governance: Codes, Remuneration, CSR

EGYPT

Governance

BAHRAIN

Areas currently being addressed by companies

ALGERIA

National government priority being placed on a sustainability theme at a general level

Areas Introduction of Materiality

TABLE 2.2: Priority Sustainability Issues (Continued)

Environmental impact: biodiversity, deforestation, crop residue disposal, water scarcity, food security Food nutrition, health (organics, GMOs, obesity) Resource management & community development

Waste Management Infrastructure building: Urban service delivery Waste management innovations, technologies Urban waste management (solid, water) Industrial waste management, treatment, recycling, disposal, responsibility, R&D

UAE

Rural development: smallholders, income, inclusion

TUNISIA

R&D: Land improvement, soil, irrigation, farming

SYRIA

Agriculture

QATAR

Urban air pollution (materials, cement, transport)

PALESTINE

Sustainable building: standards, rating systems

OMAN

Environmental impact: pollution, waste, resource consumption

MOROCCO

Construction

LIBYA

Public transport development in urban areas

LEBANON

Climate change: Carbon, GHG emissions

KUWAIT

Transport

KSA

Child labour

JORDAN

Sustainable human development (skills, decent jobs)

IRAQ

Labour rights: Workplace conditions, wages, legal

IRAN

Labour

EGYPT

companies

BAHRAIN

Areas currently being addressed by

ALGERIA

National government priority being placed on a sustainability theme at a general level

Communicating Corporate Sustainability in the MENA Region

[Tables 2.1 and 2.2 maps priority sustainability issues identified by external sources and instances where companies are addressing those issues (or not), by country. (Shaded teal boxes indicate national government priority being placed on a sustainability theme at a general level[51], shaded grey boxes indicate areas currently being addressed by companies). Some sustainability issues such as energy management and sustainable finance are areas where national focus is high and MENA-based companies are very active. MENA governments do not appear to be launching specific national plans addressing waste management for example, but it is a popular sustainability engagement area for many companies currently. In some crucial cases there is an evident disconnect in the concern and action taken by both the government and corporate sector’s approach to issues communicated as highly significant to the country or region. For example in the areas of sustainable construction, transport and agriculture (or food security) showing pressing social and environmental sustainability issues. Addressing needs for water management, a critical material issue to the overall region, is also lagging in company initiatives.

There are many instances of MENA companies initiating strategic sustainability actions to drive their business forward, and most crucially, in issues that are material and impactful to their business. The following examples illustrate issues covered by companies and how they relate to materiality issues in the region. Banks and financial services firms acknowledge environmental risks, opportunities and impact on the larger economy, society and in-turn their own business. In adoption, the BLC Bank in Lebanon states their investment decision-making approach is itself a pillar of their corporate social responsibility. They think of CSR as a way to expand capital markets through product development for example innovating ‘eco-loans’ to disburse among entrepreneurs effecting green business models.[52] Two companies in the Kingdom of Saudi Arabia (KSA) are addressing the same energy sustainability issue from different vantages. SABIC, a chemicals and energy conglomerate is leveraging the national government’s electric ‘energy consumption efficiency’ platform to conduct preliminary studies and introduce utilities pricing, a significant energy-related sustainability issue across MENA’s highly subsidized markets.[53] In the stream of knowledge-creation, the Saudi Electricity company (KSA) makes donations to

[51] Adapted from “Table 2”, page 192 in the UNEP’s “Global outlook on SCP policies” report 2012. [52] BLC Bank, Corporate Social Responsibility Report 2011, Lebanon. [53] SABIC Group, Sustainability Report 2012, Saudi Arabia.

Areas of Materiality Introduction

knowledge development in areas related to energy and electricity in-line with the sector in which it operates, specifically research and development into efficient power sources, transmission, generation and distribution. Part of the company’s sustainability strategy is to use this education towards finding ways to deliver electricity to potential customers in villages in remote areas and in urban informal settlements[54]. The Suez Cement company based in Egypt presents a case of initiating best practices in business management to cater to sustainability concerns in key areas impacting the company’s operations.

Sustainability Disclosure Report 2011 First Sustainability Report Reporting frameworks: World Business Council for Sustainable Development – Cement Sustainability Initiative (WBCSD-CSI) 2011. Employees: 4,622 Local company [54] Saudi Electricity company website (at http://www.se.com.sa/SEC/Arabic/ Menu/Corporate/SResponability/) accessed December 5 2013.

CASE STUDY: Egypt, Construction & Materials Suez Cement (Italcementi Group) is comprised of an industrial network of five cement production plants located throughout Egypt, with an annual production of approximately 12 million metric tons. Governance & Frameworks for Sustainability Following its recent acquisition and subsequent changes in management, the Suez Cement Group is aiming to adopt best practices in business performance and sustainability at the core of its operational strategy, culture, responsibility and competitiveness. The company reports its Sustainability Policy covers key themes affecting their business, eg.: human rights, business integrity, health and safety, labor practices, supply chain, energy and environment. The companies use group-level corporate governance principles to monitor and disclose shareholding structures, authorities, powers and procedures. Other governance programmes include: Anti-bribery compliance, Antitrust Compliance and Enterprise Risk and Compliance. Internal governance capacity-building deliver benefits of risk mitigation and corporate social responsibility. After Egypt’s January 2011 Revolution, the Group has been managing the restructuring of company policies and working conditions for its’ employees and contractors through union agreements and overtime reduction, as examples. The Group’s new Social Initiatives Policy aims to build relationships with ‘all the relevant stakeholders and define rules for supporting organizations and social projects.’ In its first sustainability report, the company is reporting safety, health and product responsibility performance supported by quantitative data and information. In addition, Suez Cement Group is developing KPIs for its performance on environmental protection, which include key environmental sustainability themes, eg.: climate and energy, environmental management, air emissions, water and natural resources, and quarries. Committing to its vision, Suez Cement published its’ 2015 Sustainability Objectives in key sustainability areas supported by metrics and KPIs. The company employed an independent assurance report on its’ CO2 emissions which was based on the World Business Council for Sustainable Development reporting criteria for the Cement Sustainability Initiative (WBCSD-CSI).

Communicating Corporate Sustainability in the MENA Region

Introduction

DEVELOPMENTS & CHALLENGES IN REPORTING

Communicating Corporate Sustainability in the MENA Region

Adopting ESG Reporting As seen in this report, the majority of listed companies reporting from the MENA region is involved in sustainability efforts and reaping benefits from their activities. A few companies progressing on sustainability performance are indicating what the next levels of sustainability reporting and strategy are for the region. Adopting ESG reporting in order to address the most significant sustainability issues and linking these issues to business strategies are the main areas looking forward. Similar to global trends, companies in the MENA region that substantially address important sustainability issues tend to address a few key dimensions. Among the action points which make some companies “walkers” instead of “talkers” on sustainability issues are: developing a sustainability strategy and business cases, making sustainability a top management issue and measuring progress on corporate sustainability performance[55].

[55] Kiron, D. “Sustainability’s Next Frontier: Walking the talk on the sustainability issues that matter most.” MIT Sloan Management Review, 2013.

Most listed companies reporting from the MENA region can be described as brief reporters, posting spontaneous information about their sustainability performance on their websites and sometimes in annual company reports. Unstructured, and non-data driven, reporting presents various challenges to understanding the company’s sustainability practices such as identifying sustainability issues and tracking a company’s progress. Nearly a quarter of brief reporters are using annual reports to communicate their corporate sustainability management practices, mainly issued by large and medium sized companies. Usually the priorities of annual reports are to communicate financial performance, corporate governance, quality management certifications/operations and employee development. Increasingly sections dedicated to Corporate Social Responsibility (CSR) and philanthropic activities are being added to annual report publications.

Developments & Challenges in Reporting

TABLE 3: Brief Reporters on Sustainability & Corporate Social Responsibility Issues in Annual Reports and on Websites As reported by brief reporters (base: 68) in their annual reports and on their websites.

CORPORATE GOVERNANCE - Coordinating company performance and ESG factors to enhance product innovation, quality and service - Gearing production and operations towards sustainability - Aligning sustainability with commercial strategies - Producing needs versus wants or expectations

HUMAN DEVELOPMENT - Training, skills development, health and safety - Charity, emergency relief funds for employees - Social security benefits and health insurance - Nationalisation (in GCC countries) - Workplace conditions (few) - Gender equity (few)

Integrating Environmental, Social and Governance (ESG) factors in annual reports presents a huge opportunity for adopting ESG reporting with the same thoroughness as financial reporting, needed to fully assess a companyâ&#x20AC;&#x2122;s sustainability performance. In addition, information presented along formal frameworks of reporting guidelines would help synergize companiesâ&#x20AC;&#x2122; efforts and help to highlight sustainability opportunities and challenges. These best practices ultimately position companiesâ&#x20AC;&#x2122; responsibility strategies to address material sustainability issues, as extensive reporting companies tend to do more effectively. A few companies are utilizing this route to begin dialogue on sustainability issues, sharing snippets of their perspectives. Solidere (Lebanon) discusses material sustainability issues to the Real Estate and Construction sectors as it impacts the MENA region as well as the local site locations where the company constructs. As a sub-section in their annual report,

OPERATIONAL CERTIFICATION - Certification achievements: ISO, HSE, OHSAS, HSEQ - Achieving operational excellence as a good corporate citizen - Integrated quality management - Green building, sustainable urban design

CSR & PHILANTHROPY - Donations and grants, philanthropic events or more generic social investment in community health, sports and education. - Humanitarian relief - Donations and grants to environmental protection, local communities - Community outreach

headline statements gave basic indications to issues such as producing sustainable urban building designs and the land degradation challenges along waterfront and coastal construction sites. Currently an emphasis on reporting corporate activities related to financial donations to environment, health and culture as a form of social responsibility is a prominent reporting theme among the banking and financial services sectors for example. Only one company mentioned intentions to review internal policies related to corporate social responsibility. Linking CSR and sustainability to business strategy would be the next step, as companies such as the Ahli Bank in Jordan, get more strategic in their approach to CSR management. By developing a sustainability strategy with top management involvement and a CSR manager and budget for the first time, the company is addressing key dimensions towards actual sustainability practice.

Communicating Corporate Sustainability in the MENA Region

CASE STUDY: Jordan, Banking Jordan Ahli Bank is a leading local institution and one of the earliest public shareholding companies established in the country. Approach Towards CSR Management Jordan Ahli Bank used their corporate social responsibility report 2012 to communicate the results of an assessment of the bank’s CSR efforts, in order to identify a renovated direction and focus areas for the bank to align its vision and business strategies with. In an “honest self check”[56] the bank boldly decided to shift their approach, which had been based on a long heritage of social contribution through different programmes and means. The bank discovered that “while attempting to serve as many societal causes as it could, in widely diverse areas, the CSR investments and contribution could achieve an even higher impact on society and stakeholders with a more strategic approach.”[57] The bank recognised that its’ CSR activities could be formed to achieve both more impactful business and sustainable development results. With this new direction, Jordan Ahli Bank reports their ‘fresh way of thinking’ included a renewed corporate vision, a revamped mission statement and new corporate social responsibility strategy and focus areas. Internally, they plan to align their operations and strategies with United Nations Global Compact (UNGC) 10 universally accepted principles in the areas of human rights, labour, environment and anti-corruption. Fi- nally, the bank’s commitments to “walking the talk”[58] is a focus area where it reports its direct impact on the environment and society, supported by internal, social and environmental performance indicators.

[56] Ahli Bank Corporate Responsibility Report 2012 [57] Ibid. [58] Ibid.

Corporate Responsibility Report 2012 Reporting frameworks: GRI (Application Level C), Corporate Responsibility framework of Jordan Ahli Bank, planned signatory of UNGC (2013), Employees: 1,311 Global operations: 4 countries

Developments & Challenges in Reporting

Linking Sustainability & Business Strategies An air of change is driving a few MENA-based companies towards new thinking and improved approaches towards sustainability and corporate social responsibility management. While the majority of companies still tend to take a broad view of their role in tackling sustainability issues, a noticeable shift is occurring towards adopting a closer connection between the corporation and its’ operating environment as a matter of long term survival. Companies can no longer function in isolation of their communities.

sibility. Aligning sustainability with commercial strategies has inspired companies to innovate their products and services to cater to new markets. For example, telecom firms developing technology solutions that expand communication connectivity, closing the digital divide to impact overall socioeconomic and rural development, or expanding their reach into less privileged market segments and enhancing the affordable availability of their product and/or service.

Reviewing the information companies are communicating on their corporate social responsibility, this study noted initiatives that involve a company’s core business, new commercial ventures/ products or internal reengineering (operations, processes) or changing business models due to the impact of ESG factors in their operating environment. About 21 percent of firms, or 36 of the total companies surveyed are activating plans to link sustainability with their business strategies, demonstrating impressive examples. What seems to motivate these companies’ actions are aims to mitigate business risks, to create new frameworks to keep the company’s sustainability and responsibility activities relevant and impactful, and to communicate responsibility and commitment to company stakeholders. An analysis of companies’ reports and briefings yielded four different areas under which these initiatives are happening.

Developing Knowledge, Policy & Governance

Creating frameworks and adopting new approaches are key efforts companies are focusing on to remain relevant and competitive. Companies are exerting effort into getting internal policies in place for sustainability performance. With other strategies, companies are supporting public research, private studies and education in sustainability issues that affect their business and industry. The majority of companies in the MENA region are at the stage of identifying sustainability issues, or relating to the environmental, social, economic and governance issues most material to their business and aligning them with the company’s priority focus areas.

Operational Efficiency

Moving beyond achieving certification standards (such as ISO) and recognition for operational excellence as a good corporate citizen, companies Expanding Markets Product Innovation are progressing towards an approach that takes pride in finding competitive business advanMENA companies, particularly large market cap tages through social and environmental proteccompanies, report confidence in improving prod- tion. For example, reducing industrial operations’ uct and service quality and innovation by coordi- resource and energy needs for improved profitnating company performance and ESG respon- ability, or implementing sustainability across the

Communicating Corporate Sustainability in the MENA Region

companyâ&#x20AC;&#x2122;s supply chain for increased capability. Some companies are looking to achieve higher integration of corporate operations and processes, including financial reporting practices and corporate governance, in order to transform their sustainability and social responsibility management.

the broader view of contributing to strengthening fence-line communities, companies are looking for opportunities for competitive advantages gained through integrating a social value proposition into business strategy. Companies demonstrate how their sustainability framework is built on stakeholder needs. Companies also embed sustainability into corporate operations by identifying stakeholder groups Stakeholder Engagement (such as customers, employees, local communiAchieving excellence in stakeholder engagement ties, civil society, suppliers and shareholders), deis an active area for a few companies developing termining their top issues and tailoring business corporate sustainability strategies. Going from strategies to address them.

CHART 8: Percentage of Companies Managing Stakeholders (by Country) Egypt Morocco UAE Oman Palestine Kuwait Lebanon

22% of companies operating in the MENA region are involved in some form of stakeholder engagement.

KSA Syria Bahrain Iraq Jordan Libya Tunisia

Percentage of Companies

Algeria Iran Qatar

20%

40%

60%

Base: All companies (170)

80%

100%

Developments & Challenges in Reporting

How Companies are Linking Sustainability with Business Strategies As reported by companies in their sustainability or annual reports or on their websites.

EXPANDING MARKETS - Coordinating company performance and ESG factors to enhance product innovation, quality and service - Gearing production and operations towards sustainability - Aligning sustainability with commercial strategies - Producing needs versus wants or expectations

KNOWLEDGE, POLICY & GOVERNANCE - Financial donations to support issues related to own industry or sector for R&D, market research, policy development - Research to support entrepreneurship and SMEs to expand banking and capital markets - Education to improve labor and expand capital - Compliance with sustainable development regulations within the overall company vision - Formulating policies for sustainability performance - Creating frameworks to identify material sustainability issues, areas for appropriate contribution/impact - Reviewing internal policies and strategies for CSR and SR

OPERATIONAL & PROCESS EFFICIENCY - Certification achievements: ISO, HSE, OHSAS, HSEQ - Achieving operational excellence - Developing processes and operations through environmental protection - Reducing needs (non-renewable resources, energy) in operations - Balancing economic growth, environmental protection and social responsibility to anticipate and manage business risks - Implementing sustainability across the company’s supply chain - Improved coordination of operations for transformative sustainability strategy development: reporting, financial reporting processes - Corporate Governance: Transparency, financial reporting, management - Embedding sustainability and CSR strategies in the business - Linking transparency and corporate governance to enhance company performance, risk management and delivery of ‘quality’

STAKEHOLDER ENGAGEMENT - Embedding sustainability by identifying stakeholder groups, collecting feedback, policy development - Identifying ‘voiceless stakeholders’ - Building the company’s sustainability framework based stakeholder top issues, priorities. - Strengthening communities - Labor development for industry sustainability and growth - Sustainability and responsibility as non-financial incentives to boost employee motivation and satisfaction

Communicating Corporate Sustainability in the MENA Region

Companies based in Morocco and in the UAE (see Chart 9) tend to report about integrating sustainability principles into their core businesses at a relatively higher rate within the MENA region. In Morocco these five companies come from varying sectors, while in the UAE banks and telecommunications companies appear to invest more in their sustainability management announcing developments in corporate governance and stakeholder engagement activities.

Sustainability activity among companies in other countries also demonstrates a few cases of strategic practices. For example, the Chadormalu Mining and Industrial Company in Iran mention notable accomplishments briefly on their website, regarding ways the company is handling material sustainability issues related to the mining sector. For example, they established a dedicated research and development (R&D) unit to find ways to decrease chemical waste and pollution (dust, waste)

CHART 9: Companies linking sustainability and business strategies (by Country) Morocco UAE KSA Kuwait Egypt Lebanon Algeria Bahrain Iraq Iran Jordan Libya Oman Palestine

Number of companies

Syria Qatar

Base: All companies (170)

Developments & Challenges in Reporting

CASE STUDY: Morocco, Utilities from their operations, and are conducting a study on applications of waste material in creating a new mineral product[59]. In-line with inclining expectations from sectors such as utilities, as well as telecom and banking industries in the region, companies in these sectors are promptly linking sustainability and business, to stay in line with global practice. The Attijariwafa bank of Morocco for example is beginning to integrate national development and bank performance statistics to develop a sustainable business strategy. Linking transparency measures and other corporate governance measures to bank’s economic performance are frameworks that allow the bank greater risk management capacity but also platforms for improved product and service quality. Grappling with high priority sustainability issues in the MENA region, related mainly to water management, energy production and urban development companies operating in the utilities sector face rising demands. The LYDEC company in Morocco is implementing a business plan to transform their abilities to respond to sustainability challenges. [60]

Lydec or Lyonnaise Des Eaux de Casablanca, is involved in electricity and water distribution in Morocco, as a publicly listed company on the Casablanca Stock Exchange. Synergies – Enhancing Company Responsiveness to Sustainability Concerns Lydec describes its operating environment as fastevolving, where their stakeholders’ expectations are stronger than ever before regarding their quality of service and commitment to their performance. To enhance their responsiveness to material issues, the company is directing new reporting and management tools that will unify and mobilize their business around common guidelines. By launching a new business project “Synergies 2020” LYDEC aims to adopt a more participatory approach to their sustainability management to be more accessible and performance driven. They intend to assess the needs of all their stakeholders in greater depth and to make better use of this knowledge by using it as inputs into their strategies and also to focus on sharing insights throughout the organization. A central aim for the company is that employees share a sustainability vision aligned with the strategic objectives of the company. Eventually every employee will be aware and involved in tackling the company’s sustainability concerns and held accountable through new management procedures such as adding sustainability objectives to employee performance reviews on a quarterly or annual basis.

Activities Report 2012 Reporting frameworks: - None Local company

[59] Chadormalu Mining & Industrial Company website (http://www.chadormalu.com/en/about_us.aspx), accessed Nov 19 2013. [60] Attijariwafa Bank Social Responsibility Report 2012 (Rapport de Responsabilite de l’Entreprise 2012)

Communicating Corporate Sustainability in the MENA Region

As seen in this report, the telecommunications industry plays a substantial role in MENA economies and has potential to impact the social development of countries in which companies operate. In recognition of the impact of their large-scale operations on their country, Oman, the local company Omantel makes commitments to sustainability reporting.

CASE STUDY: Oman, Telecommunications Oman Telecommunication Company (Omantel) is the country’s leading provider of telecommunication services, and since the merger with Oman Mobile in 2011, has an expanded portfolio offering fixed, mobile and internet broadband services. Recognising Responsibility With its first sustainability report, Omantel seeks to communicate a review of its’ activities and accomplishments as they operate in the growing Oman telecom industry. The company’s motivation is also derived from the recognition of responsibility as a large-scale operation that has significant impact on its country’s economic growth and human development. At this time, the company views Environmental Social and Governance (ESG) performance reporting as a framework for organizing priorities and communicating its’ performance to large groups of stakeholders as it takes on these challenges. As a best practice to keep their sustainability report relevant, they prepare a materiality matrix. Based on stakeholder engagement sessions, the company uses the matrix as a tool to benchmark the priority of topics and to appreciate the interrelationship between the relevance of sustainability issues to external stakeholders and the potential impact on their business. Higher priority topics are reported on in more detail and supported by metrics and social performance indicators guided by the GRI index published within the report.

Sustainability Report 2012 First sustainability report Reporting frameworks: GRI (Application Level C) Employees: 2,875 Local company

Developments & Challenges in Reporting Introduction

CHART 10: Companies linking sustainability and business strategies (by Sector) Industrial Goods

Number of companies

Media Education Travel Automotive Transportation Technology Retail Oil & Gas Mining Health Care Insurance Agriculture Financial Chemicals Basic Resources Real Estate Food Processing Utilities Telecom Construction Banks

Base: All companies (170)

Communicating Corporate Sustainability in the MENA Region

Data & Metric-Driven Reporting Full reporting on sustainability performance ultimately lies in a companyâ&#x20AC;&#x2122;s capacity for non-financial reporting that is backed by data. About 12 firms, or 7 percent of companies studied, are kicking off initiatives to report on their corporate sustainability and responsibility along frameworks supported by quantitative indicators and analysis. Leading data reporting companies tend to be large cap firms and companies based in Morocco and the UAE, followed by Egypt.

7% of companies are providing data and metrics on their sustainability performance.

Thinking about business sustainability along ESG factors is leading companies to identify new opportunities and tackle challenges more efficiently. Sustainability reporting allows companies the chance to review corporate and social responsibility polices, identify material sustainability issues and track progress against previous commitments made on environmental, social and governance issues. The telecommunications company Du in the UAE showcase their experience in their second annual sustainability report in this way, using metrics and KPIs to review their sustainability performance over the years.

CHART 11: Number of Companies Reporting Data (by size)

Large Cap Companies (6) Medium Cap (3) Small Cap (3) Micro Cap Companies (0)

Base: All companies (170)

Developments & Challenges in Reporting Introduction

CASE STUDY: UAE, Telecommunications Du offers mobile and fixed telephony, broadband connectivity and IPTV services, as well as carrier services for businesses, with a vision “to enhance your life; anytime, anywhere.”

Executing Sustainability Strategies, Managing Performance As companies, like Du, garner experience in stakeholder engagement and developing sustainability strategies, they are eager to see these plans implemented throughout the organization. Du uses the Balanced Scorecard (BSC), a framework that helps organizations outline key management themes and their corresponding strategic objectives and action points. The company’s CEO conducts an annual progress review of the BSC with all employees, deciding how to embed sustainable development priorities into the overall corporate scorecard. They use this tool to, for example, implement energy efficiency management into different business functions. Strategic objectives are tracked through Key Performance Indicators (KPIs) with tangible targets attached, and performance is reviewed on a monthly basis. A mechanism to cascade sustainability targets, employee performance appraisals are also linked to the Balanced Scorecard. Du’s Sustainability Report communicates quantitative results of corporate social responsibility themes material to its’ operations. Each chapter of their Sustainability Report (covering employees, customers, environment and community) begins with a scorecard intended to track progress on previous commitments on key material issues. This is further supported with detailed metrics and quantitative data reporting various initiatives such as results in environmental responsibility regarding waste management, measuring the impact of introducing a new hazardous waste policy or the recycling rates achieved by the company over the year.

Sustainable Development Report 2012 Second annual sustainable development report Reporting frameworks: GRI 3.1 (Application Level B+), UNGC member (2008) Ranked first in MENA’s Standard & Poor/Hawkamah Environmental, Social and Corporate Governance Index in 2011. Employees: 1,910 Local company

Communicating Corporate Sustainability in the MENA Region

CHART 12: Companies Reporting Data (by Country) Morocco UAE Egypt Jordan

Number of companies

KSA Kuwait Lebanon

Base: All companies (170)

A common entry point among MENA listed companies is the endorsement of reporting frameworks or initiatives, particularly Global Reporting Initiative (GRI) tools such as the GRI 3.0 framework and corresponding index. Subscribing to the United Nations Global Compact (UNGC) is also an early stepping-stone towards more detailed reporting that included a higher level of disclosure; since UNGC subscribers must submit communication on progress (COP) reports that include their overall sustainable performance with little focus on the detail of GRI reporting for example. Moving forward, a few companies are using data to set key performance indicators (KPIs) and internal targets in ESG domains that can be monitored as an example of best practice in sustainability management. Statistical disclosure is seen as the basis to anticipating and managing business risk. Data and metrics can transform companies’ sustainability management to be more strategic and integrated in the core business, allowing companies to benchmark and report their progress against commitments made in previous years’ sustainability reports. To improve data credibility and validation, leading reporting companies seek third party assurance, performed by external consultants, to validate data credibility as a part of their sustainability reporting procedures. About 8 companies in our sur-

vey had the data disclosed in their sustainability reports validated externally. The most prominent benefit achieved from reporting on sustainability performance backed by data and metrics, as cited by companies engaging in the practice, is that it provides a tangible way to communicate commitment to their corporate social responsibility and gaining their stakeholders’ trust. The small segment of surveyed companies involved in publishing full sustainability reports supported by data and tracking metrics show tendencies towards covering material sustainability issues relevant to their business and industry. And in relation, they also tend to be highly involved in stakeholder engagement in developing their sustainability strategies, and tailoring those strategies to address their needs. In the construction industry in Lebanon, Holcim Liban has begun reporting extensively on their materiality issues. They report their environmental performance in areas of emissions, resource materials consumption and the corporation’s water management practices. Putting high emphasis on dialogue with their stakeholders and data management, the company’s social responsibility strategy is linked to business objectives ultimately aimed at building sustainable construction for society.

Developments & Challenges Introduction in Reporting

CASE STUDY: Lebanon, Construction & Materials Holcim Lebanon is a leading cement company in Lebanon and the only producer of white cement in the country, with a total annual cement production capacity of 2.5 million tons currently. Their vision is “to provide foundations for Lebanon’s future.”

Prioritizing materiality issues and extensively reporting sustainability performance Holcim Lebanon employs a business risk management system (BRM), which integrates corporate risks and opportunities to address sustainability issues of the highest priority. The firm has been conducting research amongst its stakeholders since 2008, giving them an early-starter advantage. Every reporting cycle, Holcim repeats a materiality review to re-assess risks and opportunities found within stakeholder needs and expectations. Through numerous rounds of their materiality review, the company has been able to build on their knowledge of sustainability concerns and data/information collection. This experience is reflected in a best practice they adopt of prioritizing material issues according to stakeholders perspectives on economic, social and environmental areas. Holcim Lebanon provides one of the most extensive performance reports among surveyed companies regarding its progress against KPIs in environmental, social and economic dimensions. Performance indicators are measured through a far-reaching monitoring programme, ensuring data accuracy and consistency. Reliable data and information sources in the company’s view are: annual plant environmental performance reports, management reports, annual CSR reporting material and other internal and external reports. Continuous data collection and performance measurement systems have facilitated their reporting process and credibility.

Sustainable Development Report 2012 First Sustainable Development report published in 2006 (published every 3 years), Third sustainable development report Reporting frameworks: GRI Employees: 295 Multinational Corporation, local

Communicating Corporate Sustainability in the MENA Region

Using Reporting Guidelines Reporting guidelines help companies to select material content and key performance indicators. More than half the companies publishing full reports mention the endorsement or subscription to externally developed principles, charters or initiatives to address sustainability issues. These firms tend to employ more precise tools such as the Global Reporting Initiativeâ&#x20AC;&#x2122;s (GRI) performance indicators and guidelines in particular GRI 3.0 and GRI 3.1. Other tools such as the UNGCâ&#x20AC;&#x2122;s COP, the International Finance Corporationâ&#x20AC;&#x2122;s (IFC) risk rating on social and environmental impact, KPMG sustainability data and Millennium Development Goals (MDGs) are also popular. A small group, that includes 11 percent of companies reviewed, are using more than one framework in their reporting practices. [see Chart 13].

More than half of extensive reporters are using reporting guidelines recommended by advisory entities.

companies or 47% of extensive reporters are activating the first or second round of their sustainability reports while using GRI mechanisms. Companies in Banking and Telecommunications report along GRI guidelines most frequently. The top three countries in this regard are the UAE and Morocco followed by Oman. Most companies based in Morocco are using the GRI guidelines while they report data, alongside their own sets of social performance indicators. In addition, the majority of companies who follow GRI guidelines also report on metrics related to sustainability issues and tend Adherence to guidelines is significantly higher to have higher strategic involvement and stakeamong listed companies who are issuing full re- holder engagement in their sustainability manageports (at 50 percent), and comparatively lower, ment practice. among brief reporters, at just 7 percent. Fifteen

CHART 13: Reporting using Guidelines

Reporting using guidelines

Reporting without guidelines

Using more than one framework

Popular reporting frameworks used by companies in the MENA region come from the Global Reporting Initiative (GRI) and the United Nations Global Compact (UNGC) Base: Extensive reporters, all companies publishing stand alone or integrated sustainability reports (32)

Introduction

MOVING TOWARDS ENHANCED REPORTING & STAKEHOLDER ENGAGEMENT

Communicating Corporate Sustainability in the MENA Region

Enhanced Reporting & Stakeholder Engagement As more companies come to the realization that business as usual that focuses merely on bottomline returns, will not allow them to exist in the long term, the adoption of an integrated sustainability management paradigm becomes more and more at- tractive. Furthermore, where good governance and accountability may not have been of high materiality pre the Arab Uprisings, these are areas that can no longer be ignored. For companies to continue to exist, specifically in post Arab Uprisings countries where stakeholders have found their voice, transparency and disclosure are necessary. As companies continue to tap into the innovation and increased layers of value derived from adopting sustainable practices across the operations of their companies and in how they interface with their external environment and surrounding community, reporting and disclosure become a natural manifestation. In order to continue to see an increase in detailed sustainability reporting, below are recommendations for a way forward: • Continuing with current efforts of sustainability networks, industry associations, and capital market associations in raising awareness around sustainability and the business case for sustainability, as well as introducing frameworks of practice. In light of international research on the topic, it is also necessary for such associations to: - Target senior management and executives since

[61] Kiron, D. “Sustainability’s Next Frontier: Walking the talk on the sustainability issues that matter most.” MIT Sloan Management Review, 2013.

their commitment is one of the main pre-requisites for the successful adoption of CSR/sustainability - Create sector and industry specific working groups that focus on sustainability practices within their respective industries; this is especially important given the varying areas and degrees of materiality across different sectors which translate into different needs and priorities. Sector/industry specific working groups and associations would tailor discussions and services to the needs of their respective sectors as opposed to offering a “one size fits all approach” solution that does not necessarily address sector specific materiality topics thor- oughly. • Developing a more enabling environment with government incentives and policies that promote sustainable business practice, • Developing capital market authorities and associations alongside other networks who champion sustainability reporting, • Development of platforms that allow different parties and stakeholders to voice their opinion and interact with the private sector, • Provision of subsidized training and capaci- tybuilding initiatives by the public sector and donor community, • Development of a tool kit for stakeholder engagement, which is integral to sustainability management, and • Increased public recognition of companies who have applied sustainability practices across their business. [61]

ANNEX 1. A SUMMARY OF SAMPLE FINDINGS

Communicating Corporate Sustainability in the MENA Region

List of Extensive Reporting Companies

Countries

Abu Dhabi National Energy Company (Taqa) Agillty (Logistics) Public Warehousing Arab Potash Attijariwafa Bank Bank Audi Bank Muscat BBK BirZeit for Pharmacutical BLC Bank BMCE Bank Centrale Laitiere Emaar Properties (DXB) Emirates Integrated Telecommunications Company (Du) (DXB) Etisalat (AD) Glaxo Smith Kline Holcim Liban Jordan Ahli Bank Kuwait Finance House Kuwait Food Company (Americana) LYDEC Managem Maroc Telecom National Bank of Abu Dhabi National Mobile Telecom (Watanyia) National Bank of Kuwait Oman Telecommunication (OMANTEL) Orascom Telecom Media & Technology Qatar National Bank SABIC Suez Cement Union National Bank (AD) Wataniya Telecom Algerie

UAE Kuwait Jordan Morocco Lebanon Oman Bahrain Palestine Lebanon Morocco Morocco UAE UAE UAE Egypt Lebanon Jordan Kuwait Kuwait Morocco Morocco Morocco UAE KSA Kuwait Oman Egypt Qatar KSA Egypt UAE Algeria

Introduction

LIST OF ACRONYMS & ABBREVIATIONS ATC BSC BSR CGMP CSO CSR CEBC DFM ECRC EIOD ESG GCC GIZ GRI HSE HSEQ ice_ribh IFC ISO KPI KSA MDGs MENA NGO OHSAS R&D SMEs SOE UAE UNGC

Ahead of the Curve Balance Scorecard The Business of a Better World Current Good Manufacturing Practices Civil Society Organizations Corporate Social Responsibility Clean Energy Business Council of the MENA Dubai Financial Market Egyptian Corporate Responsibility Center Egyptian Institute of Directors Environmental, Social & Governance Gulf-Cooperation-Council Gesellschaft f端r Internationale Zusammenarbeit Global Reporting Initiative Health, Safety & Environment Health, Safety, Environment and Quality Responsible & Inclusive Business Hub International Finance Corporation International Standards Organisation Key Performance Indicators The Kingdom of Saudi Arabia Millennium Development Goals The Middle East and North Africa Non-Governmental Organization Occupational Health and Safety Management System Research and Development Small Medium Enterprises State-Owned Enterprise The United Arab Emirates The United Nations Global Compact

Communicating Corporate Sustainability in the MENA Region

Communicating Corporate Responsibility in the MENA Region

A comparative study on non-financial reporting across 17 countries in the Middle East and North Africa. Published by GIZ 2014