In January, the GCC stock exchanges - including all the major bourses in the region - published ESG disclosure guidance for listed companies. This coordinated effort was in line with recommendations from the World Federation of Stock Exchanges and encompasses 29 disclosure areas ranging from GHG emissions to gender diversity and data privacy.
Edelman Smithfield has a positive view of this development, as it benefits both issuers and investors in three significant ways:
- GCC stock exchanges are demonstrating sophisticated coordination: While other jurisdictions risk sowing the seeds of investor frustration through overlapping efforts – resulting in double or even triple layers of reporting – the GCC’s guidance applies one common approach across a regional pool of capital. In our view, this coordination could serve to deepen investor interest in local listings by providing a common ESG disclosure template, potentially broadening the capital pool available and improving liquidity.
- Guidance is anchored in recognised frameworks: The GCC stock exchanges have shown significant pragmatism by avoiding the pitfalls of other jurisdictions; they have not sought to 'reinvent the wheel' on which ESG data points are relevant for investor decision-making. The disclosure standards are easy to understand, grouped in a logical order, and mapped to stringent pre-existing definitions set by groups such as the Global Reporting Initiative (GRI). This should allow issuers, particularly those with existing ESG reporting mechanisms, to streamline compliance with the recommendations, thus enhancing issuer take-up of the guidance.
- Issuer and investor friendly: The standards and accompanying guidance are clearly not intended to replace non-negotiable listing rules - the bedrock of solid issuer-investor trust. Rather, we believe the standards will augment the actionable information available to end investors, and therefore facilitate constructive dialogue between companies and their shareholders on material ESG issues.
Given the above, Edelman Smithfield has two core recommendations for corporates seeking to add the standards to their investor relations toolkit:
- Begin mapping your existing ESG data reporting to the disclosure standards early: In our view, existing and potential issuers can gain useful insights on whether their reporting is significantly ahead of (or behind) international best practice by mapping their current ESG data to the 29 standards issued by the GCC exchanges.
- Scope out an ESG reporting journey: With ESG reports increasingly being issued at or near the same time as published annual financials, Edelman Smithfield believes that it is never too early to start thinking about how to signpost an issuer's commitment to ESG reporting, especially for first time reporting entities. While standards may not all be met on the first attempt, anchoring future ESG reporting commitments on the published standards can enhance the credibility of initial, more limited ESG reporting efforts, and help set the tone for investor engagement on the material ESG issues faced by the company.
Edelman Smithfield has a growing capital markets advisory practice in the Middle East, where we are witnessing significant appetite for equity capital markets to provide financing solutions for local corporates. The ESG disclosure standards are therefore timely and strategic steps that can help boost local issuance and provide additional comfort to global investors seeking exposure to high growth GCC corporate sector.