Qatar based panelists shed light on the opportunities and challenges in the field of ESG (Environmental, Social, and Corporate Governance) across the GCC banking sector. During the ‘Banking on ESG’ webinar, they discussed whether it is a short-term phenomenon or will be here for long-term, The Peninsula Qatar reports
In Qatar and the western region, we have seen a lot of activities around governance in last couple of years with new regulations and laws coming into play not only in banking sector but also in listed companies. COVID-19 has acted as a catalyst to speed up the adoption of ESG.
Mohsin Mujtaba, Director and Head of Product and Marketing Development at QSE, said: “ESG is very much on the agenda as ESG is capital driven agenda in Qatar and globally. If banks do not provide ESG disclosures to their investors and do not incorporate ESG practices in their operations, they will start to lose investment capital from the investors and that will drive the need for change of behaviour. The sooner the banks embark on this journey the better it is. As for Qatar we do recognize we will not be the largest market in the region, but we want to be the investment destination of choice for ESG sensitive investments globally.
Speaking on what Qatar Stock Exchange is doing and planning to in the future in the ESG space he said, “it has been on our agenda since 2016, we are signatories of Sustainable Stock Exchange and we have issued guidance for disclosure of ESG indicators. The question for us for the last six years is how we get the listed companies to report, about which he noted, from January of next year, it is likely to become mandatory for companies to report which is a good thing and we will put a sector based requirement for certain aspects of ESG that are more relevant to be reported into the stock exchange as part of either annual report or their sustainability report.”
Regarding the reporting of overall ESG performance to the investors, he noted for this purpose we are launching an ESG Index this year which will reflect the performance of the companies that have employed ESG practices. Mandatory requirements and ESG index will be the two things going forward from us.
Mohsin said: “If banks start to incorporate the ESG criteria in their financing and lending, then society at large will start to change its behaviour and if banks are able to work with their clients to help them in cooperating ESG practices into their businesses it will help in further upgrading or pushing the ESG agenda around the social, governance and environmental aspects of the business. There is a need to align the managements of banks and companies in Qatar with the interest of the shareholders. For that purpose, we along with QFMA came out with regulations for employing stock options or incentive schemes and we need to encourage companies to adopt such schemes. In terms of reporting or disclosure requirements, the companies need to look for clarity.”
Akber Khan, Senior Director at Al Rayan Investment, said: “Climate change is a critical topic and is not going to go away anytime sooner. The social aspect came to prominence more than a year into the global pandemic and concentrates on society and the role of corporations, governments and responsibilities towards people and society and the stakeholders whether that’s the employees or the customers.”
The governance is also not a new phenomenon; all fund managers, investors have been looking at this aspect for as long as they have been investing. Governance is about how well the companies run, protect its minority shareholders and to what extent are their protections in place. In 10 or 15 years’ time we won’t be talking about ESG because everything would have become ESG, so the earlier its adopted by companies the better off they will be.
Speaking on the ESG challenges and opportunities for Qatar based listed companies, he said, one of the challenges that companies in Qatar and across the region have is disclosure and as that becomes mandatory in Qatar it will fix that quickly which will improve the scoring of a lot of the banks. Other countries in the region have different timetables when it becomes mandatory disclosure.
He said, from perspective of an investor in bank, the cost of capital for companies which are more advanced ESG strategies and score more on ESG indicators is lower, in the bond market as there is something called ‘Greenium’ which is the premium that green bonds/sukuks have on them that is as an issuer you will be able to issue more cheaply if it is a green bond/sukuk. The retail banking customers over time will start making choices about whether they want to be associated with banks depending on how green their credentials are, and individuals will be making choices about where they want to allocate their money and whose products and services they want and one of their criteria will be ESG and the younger your customers are the more important it will be for them, he added.
Kay Swinburne, Vice Chair of Financial Services with KPMG in the UK and formerly a member of the European Parliament talked about the initiatives taken in the West and the more developed markets about reporting requirements mandatory versus voluntary and the initiatives taken in those markets globally.
