MUFG Research: Contours of the GCC ESG ecosystem set to accelerate

COP 27 and COP 28 in Egypt and the UAE to accelerate conversations around transition to clean energy in the Middle East, including hydrogen, solar and wind

The GCC is undergoing a series of impactful transitions, ranging from energy and fiscal reforms to market dynamics and now a burgeoning ESG agenda, according to a recent study by MUFG titled “ESG in the GCC region: Journey towards the next normal is underway.” As oil and gas intensive states, climate change and the energy transition are top of mind, but social and governance considerations are equally part of the strategy. Rapid development of ESG disclosures continues to propel corporates’ sustainability plans which is enabling investors to strengthen engagement.

Ehsan Khoman, Head of Emerging Markets Research (EMEA) at MUFG and co-author of the report says: “The stars are aligned for the GCC to become a market leader in the global hydrogen space. The region’s abundant low-cost land, low cost of capital, existing industrial capacity, excellent solar and wind resources, geographic proximity to growth markets, low-cost natural gas, and ease of carbon capture, utilisation, and storage (CCUS), as well as ample liquidity and ease of access to capital markets, set it in an excellent position to become a leading global green hydrogen producer and exporter.”

With the energy mix heavily skewed towards fossil fuels, attention has been resolutely on ESG’s “E” pillar – states have addressed this head on. Both COP27 (Egypt) and COP28 (UAE) will increase the pressure not only on the hosts but the region as a whole to articulate execution strategies.

Following the awarding of major international events such as Dubai World Expo 2020, FIFA World Cup 2022, Formula 1 races, GCC labour laws have significantly reformed. Contextualising key social initiatives that entities can adjust to can buttress international best practices towards the “S” pillar.

GCC states are navigating governance from a low base with gender diversity, greater board independence and disclosures being tackled head-on. Underpinning the core aspects of the ESG landscape for corporates and investors is the need for clear, comprehensive and relevant disclosures. Encouragingly, the GCC has made marked strides in the “G” pillar with a host of improvements across gender diversity, board independence and disclosures.

Stephen Jennings, Head of Energy for EMEA, explains: “Hydrogen plays a prominent role in the transition thanks to its versatility, as it can easily be used as a fuel and feedstock. Rising emphasis on decarbonisation is driving renewed interest in carbon-free green hydrogen produced using electricity from renewables.”

Demand for hydrogen could reach 530 million Metric Tonnes (MT) by 2050, constituting 18% of total world energy demand. This represents a compound annual growth rate (CAGR) of 6.4% through to 2050, given current demand of 74 million tonnes annually. Saudi Arabia has plans to become the world’s largest exporter of hydrogen, aiming to produce and export four million metric tonnes per annum (4MMpta) by 2030.

Likewise, the UAE has put in place a formal national hydrogen strategy, with ADNOC, Mubadala, and ADQ launching Abu Dhabi Hydrogen Alliance to produce green hydrogen in the country. To date, the UAE has a total of seven planned and operational blue and green hydrogen projects.

The GCC producers have existing, well-developed natural gas grids, which could be potentially be modified for transporting hydrogen.

“These hydrogen transition plans will help the region achieve its renewables and net zero targets,” says Stephen Jennings, Head of Energy for EMEA.

In the UAE, Abu Dhabi has a target for 44% clean energy by 2050, with Dubai announcing its targets for 25% by 2030 and 75% by 2050. Saudi Arabia plans to become the world’s largest exporter of hydrogen, aiming to produce and export 4MMpta by 2030 and plans to build a 200GW solar plant. Qatar wants to produce 20% of its electricity from solar energy by 2030. Kuwait will generate 5 percent and 15 percent of its electricity from renewable sources by 2025 and 2030, respectively. Oman aims to have 30 percent of its electricity generated from renewables by 2030, and Bahrain announced its 10% target by 2035, with plans for 30% reduction in its emissions by 2030.

“All the GCC countries have ambitious renewables and energy efficiency targets, although energy efficiency could be the single biggest contributor to reaching climate goals more than renewables. They can achieve these goals by using existing technology, and quickly, with clear benefits from the lower expenditure on energy and reduction of CO2 emissions. This can help curb primary energy demand, thus easing new supply.”

Equally, the two global conferences in Egypt and the UAE will place environment, social, and governance issues high on the region’s agenda. Countries in the GCC have either implemented or are working towards improved sustainability disclosure. In the UAE, ADX and DFM ESG disclosure guidance was published in 2019, and in 2021 the Securities and Commodity Authority (SCA) required all entities listed on UAE exchanges to disclose sustainability reports in accordance with GRI standards and any requirements issued by respective stock exchanges. Boursa Kuwait introduced a sustainability disclosure guide in 2017 and upgraded this into its ESG reporting guide in 2021. In Saudi Arabia, Tadawul issued its ESG disclosure guidelines in 2021. The Qatar Stock Exchange introduced guidance on ESG reporting in 2016 and plans to make ESG disclosure mandatory by 2023, and in Oman, the MSX announced the establishment of a new section in its guidance to focus on ESG issues.

As part of net zero targets beyond energy, the GCC states have outlined plans for sustainable buildings, Electric Vehicles (EVs), water efficiency and tree plantations.

Whilst ambitious targets have been set for these plans, markets expect scope for further enhancements likely at COP27 (Egypt) and COP28 (UAE).

Please click this link to download the full report.

About MUFG

Mitsubishi UFJ Financial Group, Inc. (MUFG) is one of the world’s leading financial groups. Headquartered in Tokyo and with over 360 years of history, MUFG has a global network with approximately 2,500 locations in more than 50 countries. The Group has about 170,000 employees and offers services including commercial banking, trust banking, securities, credit cards, consumer finance, asset management, and leasing. The Group aims to “be the world’s most trusted financial group” through close collaboration among our operating companies and flexibly respond to all of the financial needs of our customers, serving society, and fostering shared and sustainable growth for a better world. MUFG’s shares trade on the Tokyo, Nagoya, and New York stock exchanges.