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The ESG journey for sustainable and resilient markets

We have observed several key trends emerging, particularly due to the coronavirus pandemic, which has sparked and intensified discussions about the intertwining of sustainability and the financial system.

The demand for environmental, social and governance principles (ESG) and impact investing has skyrocketed. ESG criteria are a set of standards for a company’s business that socially conscious investors use to screen potential investments.

Exchanges and clearing houses continue to play an important role in the development of capital market institutions and promote best practices in investor relations as well as best standards in ESG reporting and disclosure to ensure authentic external communication with stakeholders.

Greenwashing is not an issue in the Middle East ESG investment scene

Recent research from Quilter found that investing that isn’t what it claims was their top concern by 44 percent of investors when it comes to ESG investing

Just as investors use traditional financial data to assess the company’s performance, they use ESG data to assess the sustainability risks that can affect the company’s financial performance. The ESG data market could reach $ 1 billion in annual sales by 2021, according to Opimas’ ESG Data Market Not Stopping Its Rise Now report.

Depending on the investment strategy, ESG data can feed into different phases of the investment process, including security selection, portfolio construction and risk management. This extra layer of extra-financial information can help investors make better informed decisions.

Most of the ESG data comes from corporate public disclosures. Companies disclose this information through a number of channels including sustainability reports, annual reports, and their website. Therefore, the Bahrain Bourse has advanced its efforts to promote sustainability and transparency in the Bahraini capital market by issuing its voluntary ESG reporting guidelines for listed companies.

The ESG guideline and the recommended standards are aligned with several frameworks, including the Bahrain Economic Vision 2030, the United Nations Sustainable Development Goals (SDG), the United Nations Sustainable Stock Exchanges Initiative and the sustainability principles of the World Federation of Exchanges.

Voluntary non-financial reporting on ESG factors has become the norm for public and private companies. This also changes the role of investor relations (IR) in communicating and providing high disclosure and transparency standards through the provision of ESG data.

Note that navigating the ESG landscape can be complex due to the depth of information requirements and multiple reporting standards. Companies, issuers, asset managers and investors in different jurisdictions may be bound by different regulatory ESG requirements. Several standards and rating organizations can provide overlapping and sometimes contradicting information in this area.

The Bahrain Bourse has advanced its efforts to promote sustainability and transparency in the Bahraini capital market by issuing its voluntary ESG reporting guidelines for publicly traded companies.

The Bahrain Bourse ensures adequate transparency by adding the ESG factors followed by a case study in the recently published Investor Relations Best Practice Guide. The launch complements the efforts of the Bahrain Bourse to promote investor relations in the Bahrain capital market in collaboration with the Middle East Investor Relations Associations (MEIRA).

The Investor Relations (IR) Best Practice Guide is intended to provide listed companies with a blueprint framework to structure an effective IR program and strategy. It also provides guiding principles for IR, outlines the operational and regulatory environment, and provides guidance on IR strategies in line with best international practice.

The IR Guide also includes case studies of IR best practices for publicly traded companies. IR is the effective two-way communication of relevant information between an issuer and the financial markets to ensure that the investing community makes an informed judgment about the fair value of an issuer’s securities.

At the national level, the principles of sustainability are well anchored in the Bahrain Economic Vision 2030. Businesses in Bahrain are expected to create shared value and inclusive growth, assess their impact on capital and resources, and contribute national, regional and global visions and plans such as accelerating the fulfillment of the United Nations Sustainable Development Goals Call to action to protect the planet and ensure the global well-being of people.

These common goals require the active participation of individuals, companies, laws, and countries around the world.

Shaikh Khalifa bin Ebrahim Al-Khalifa, Chief Executive Officer of the Bahrain Bourse.

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