The UAE has a growing reputation as a regional pioneer of sustainability with the establishment of projects such as Masdar City in Abu Dhabi and the roll-out of energy efficient initiatives from Dewa and others.
But the question remains – are businesses aligning their strategies with this vision?
To answer that, let us begin by considering the main forces of sustainability affecting business.
The resources on which businesses rely today are becoming more difficult to access and more costly. There will be increasing strain on infrastructure and natural systems as patterns of economic growth and wealth change. Physical assets and supply chains will be affected by the unpredictable results of a warming world. And businesses will be confronted with a more complex web of legislation and fiscal instruments.
But that is not the whole story. Consumer and investor values are changing. And as they change, more corporations are recognising that there is profit and opportunity in a broader sense of responsibility beyond the next quarter’s results. The bold, the visionary and the innovative recognise that what is good for people and the planet will also be good for the long-term bottom line and for shareholders. Competitive advantage can be carved out of emerging risk.
The topic of sustainability is steadily moving up the business agenda. KPMG believes that 10 sustainability “mega forces” have emerged that are set to affect business around the world in the next 20 years. These are: climate change, energy and fuel, material resource scarcity, water scarcity, population growth, urbanisation, wealth, food security, ecosystem decline and deforestation.
These forces are interconnected. For example, as populations grow, demand for energy, fuel, water and materials rises, too.
In the UAE, the effects of some of these forces in particular could be heightened. The UAE is one of the biggest users of energy per capita in the world, along with its GCC counterparts of Kuwait and Qatar. Even so, energy consumption per capita is forecast to double in the GCC between 2008 and 2020.
If energy generation and oil and gas extraction must grow to meet this demand, the need for water (a vital component in these industrial processes) will also increase.
The challenge for businesses therefore is to serve consumers as resources become scarcer and more price-volatile. The greatest opportunity awaits those businesses that can efficiently provide products and services for a more resource-constrained world.
Most companies in the UAE, and in the GCC more widely, are at an early stage of thinking about sustainability in business. GCC companies are less advanced on sustainability strategy, performance and reporting than those based in Europe or the United States. The challenge is to close this gap and gain access to the benefits.
Research by KPMG International, comparing the 75 largest listed companies in Europe, the Americas and the GCC region, shows that only 11 per cent of GCC companies have a stated sustainability strategy, policy or vision, compared with 85 per cent in the Americas and 95 per cent in Europe.
Thinking strategically about sustainability is crucial to anticipate the challenges presented by environmental and social mega forces and to grasp related opportunities. So what steps should business leaders here in the UAE take next?
• Understand and assess sustainability risks and then define responses to deal with them through efficiency, substitution or adaptation.
• Use integrated strategic planning and strategy development that involves senior business management as well as sustainability subject matter experts. Plans should encompass a wide range of corporate functions such as research and development, supply chain management and financial reporting.
• Set ambitious targets that turn to actions for energy and resource efficiency, sustainable supply chain management, innovation and access to new markets for greener products and services.
• Measure and report on sustainability because what cannot be measured, cannot be managed. Monitoring is crucial.
• Seek collaboration with business partners to increase leverage and improve the cost-benefit ratio of action.
• Build strategic partnerships for genuine collaboration and dialogue with companies and governments on sustainability issues that demonstrate new and innovative approaches to public-private partnerships.
UAE companies are becoming more tightly entwined in a globalised economy and complex international supply chains. They are interacting more with foreign markets and businesses for which the sustainability agenda has attained a higher profile. As a result, pressure to reduce negative environmental and social impacts is growing. Businesses that act now, and also plan for the coming decades, are more likely to withstand this pressure and benefit from emerging opportunities.
Ian Gomes is a partner and the head of advisory and markets for KPMG Lower Gulf
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