INDUSTRY INSIGHTThought Leadership

The rise of ESG

Dr. Ahmed Ali Attiga, CEO, APICORP, speaks to GPCA Insight about the growing interest in sustainable financing across the region, and outlines the drivers to embed the ESG agenda into chemical companies’ future plans

How has the COVID-19 pandemic transformed appetite across the region for ESG?

COVID-19 saw governments and businesses reframe and pivot their operations. This was especially evident in the regional energy industry, where there have been numerous calls to operate more sustainably, be more aware about carbon footprints and the environmental ramifications of business operations – as well as social responsibility within communities.

The pillars of ESG have become vital to drive value among stakeholders who now prioritize these values more than before. It is highly beneficial because it requires institutions to carefully consider how their actions directly affect society and the environment. The recent COP26 was a stark reminder that the environment remains one of the most important issues facing society today, with several nations committed to achieving net-zero targets and divesting from fossil fuels.

What is the role of governments in the region in boosting the growth of sustainable finance?

For sustainable finance to be a genuine engine of growth, governments in the MENA region need to provide a firm regulatory framework and pass policies that help to influence change. These can include various tools including changes in tax, subsidies, financing projects and more. However, public finance alone is not going to be sufficient. To mobilize the trillions of dollars needed to progress decarbonization technologies towards commercial-scale deployment, a multi-stakeholder ecosystem that includes the private sector must be cultivated across the industry.

Dr. Ahmed Ali Attiga, CEO, APICORP

Can you tell us more about the initiatives championed by APICORP to help support sustainable financing within the energy sector?

Recognizing our responsibility to tackle environmental and climate change, we have committed to investing USD 1 billion in green energy projects and sustainable energy companies over the next two years. Additionally, we recently raised USD 750 million from our debut green bond – which garnered USD 2.2 billion in orders from more than 80 institutional and sovereign investors. The transaction truly displayed the heightened demand for sustainable investments, and the possibilities of successfully accessing international sources of ESG-driven funding.

What are some of the challenges to advancing the ESG agenda and sustainable financing in the region’s chemical sector? How can these be overcome in your view?

The majority of the ESG challenges within the MENA region are not sector specific. Indeed, there are ESG angles specific to the chemical sector, yet the GCC chemical sector has been an early adopter of environmentally friendly operational practices like CCUS and circular economy solutions. The GCC already has four operational CCUS plants (and a fifth is being built as part of Qatar’s NFE mega projects), while both SABIC of KSA and Borouge in the UAE have a portfolio of certified circular products.

As for sustainable financing, the region was late in tapping into this very much-needed source, but this is rapidly changing: 2020 was a record year for green financing in the GCC with more than USD 2.6 billion in green and sustainable bonds issued. Historically, MENA firms shied away from such financing instruments due to their demanding nature.

However, this perception has been rapidly changing since 2020 and we could see an increase in both private and public sector entities issuing green and sustainable bonds, after accelerating the development of their ESG frameworks and policies. Sustainable financing is part of the solution to advance the ESG agenda as it encourages companies to adopt ESG-aligned operational policies and promote ESG data transparency and disclosure. The recent commitment of GCC energy heavyweights Aramco and ADNOC to net-zero targets includes their chemicals business, thus setting the precedent for others to follow, whether the numerous stakeholders in their value chains or other regional energy companies.

What piece of advice do you have for chemical companies in the region to combine profitability with socially impactful projects?

Focus on long-term value creation: the social license to operate. Until a few years ago, the social dimension was an understated factor for business success, especially in the energy sector. Recently, as sustainability awareness gained global momentum, societies are rising to challenge entities perceived to be compromising public wellbeing, either imminently or pertaining to future generations. This global public awareness reached thresholds that succeeded in changing regulations throughout the world to prevent and outlaw socially irresponsible practices in energy, industry, agriculture, fishing, consumer goods and even the global banking sector financing them. Hence, the cost of capital, is now getting higher for non-ESG aligned businesses and projects, therefore, making it harder for such businesses to access the capital markets with favorable borrowing rates and in turn diminishing their profitability.

1) Increase investment in and production of circular economy products like R-PET (recyclable PET) and bio-degradable packaging material. Global demand on such products has been rapidly increasing and attracting price premiums due to rising carbon taxes in Europe, US and Asia. Domestically, demand on such products will also grow, as the UAE, KSA and Bahrain already set their net-zero targets and more nations implement tighter environmental regulations.

2) Add healthcare and hygiene materials to your product portfolio. The COVID-19 crisis demonstrated that reconfigurable chemical plants that were able to shift to production to healthcare and hygiene products responding to sudden change in demand patterns, fared well during 2020, and some even exited the year with net profits.

3) Focus on production of chemicals and critical materials of energy transition technologies, e.g., batteries, green buildings and energy efficiency products like insulation materials and carbon fibre.

4) Take responsibility and remedial actions to non-abatable emissions using carbon offsets (e.g., plantation of trees, conservation of mangroves and marine environment and/or purchasing carbon credits, now available in the region through Saudi Tadawul as a start).

5) Social engagement through CSR: Giving back to the community (such as scholarships for postgraduate research students and university partnerships on new chemical technologies for energy transition).

What are the benefits for GCC chemical companies to invest in ESG and pursue sustainable financing in line with climate and other ESG objectives?

The GCC region has been a global energy powerhouse. 2021-2030 is the last window for low-cost producers to firmly re-establish their market shares. In order to maintain and even grow its status, the region needs to adapt to the changing international energy sector environment.

The regional GCC partners have a vested interest in maintaining their existing JVs with international companies – keeping and growing export markets that are increasingly sensitive to climate and ESG objectives – and continuing to attract new ones, as chemical operations get more and more scrutinized around the world.

Increasing technology, skills and knowledge transfer through partnership with international blue-chip chemical producers contributes to the social dimension by creating jobs – and improving the livelihood – of GCC citizens under the global energy transition and maintaining the current welfare and lifestyles owed to the hydrocarbon era.