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How state-owned companies can accelerate sustainability in the Middle East and North Africa

Six persons riding camels in the distance in the Moroccan desert: The top 20 state-owned enterprises (SOEs) in MENA have emissions equivalent to the entire country of Canada.

The top 20 state-owned enterprises (SOEs) in the Middle East and North Africa have emissions equivalent to the entire country of Canada. Image: Unpslash/Jeff Jewiss

Kelsey Goodman
Community Engagement Lead, World Economic Forum
Dharmendra Hiranandani
Senior Manager, Bain & Company
Raja Atoui
Partner, Bain & Company
Akram Alami
Partner, Bain & Company
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Middle East and North Africa

This article is part of: Centre for Nature and Climate

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  • The Middle East and North Africa (MENA) region is uniquely vulnerable to climate change with already high temperatures, and yet some of its economies generate among the highest emissions per capita in the world.
  • The top 20 state-owned enterprises (SOEs) by emissions in MENA have emissions equivalent to the entire country of Canada, which give them the heft and scale to rapidly accelerate sustainability action in the region.
  • Those SOEs already outperform regional peers on many measures of corporate climate action but they must accelerate their activity and set an example for other companies if the region is to meet its ambitious climate targets.

Middle East and North African (MENA) countries are often criticized in climate change discussions for outsized emissions generated by the energy sectors. Such arguments ignore that the region’s oil and gas producers play a pivotal role in global energy demand and supply. The consequences of rising temperatures will also hit their region harder than most others, as growing desertification, dropping water tables and increasing heatwaves threaten the habitability across the region.

A better way of framing the discussion would be to point out that any solution to climate change must run through the Middle East. The start of change in the region is visible with the ambitious net zero commitments by Saudi Arabia, the United Arab Emirates (UAE), Oman and Bahrain. With Egypt and the UAE hosting consecutive UN climate conferences (COP27 and COP 28), the region is positioning itself in global climate discourse.

Crucial to meeting regional governments’ emission reduction ambitions are MENA’s state-owned enterprises (SOEs), which account for a significant share of the region’s economic activity. Taken alone, the top 20 SOEs (by emissions) in MENA have emissions equivalent to the entire country of Canada, which means they also have the scale to accelerate sustainability action in the region by themselves. Moreover, there are signs that they are doing precisely that.

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SOE leadership

In a previous blog post for the World Economic Forum, Bain & Company investigated the corporate climate commitments of 200 public and private MENA companies representing nearly 80% of their countries’ stock market capitalization and the largest firms in hard-to-abate sectors such as energy and steel. The findings highlighted the areas of improvement. MENA companies, for example, lag behind peers in other global regions in setting net zero targets, making disclosures to the carbon disclosure project (CDP) and having science-based target initiative (SBTi) approved targets.

We have since deepened our research to focus on the 20 largest MENA state-owned emitters that disclose their scope one and scope two emissions. These are companies of huge scale, such as energy giant Saudi Aramco, Emirates Airline – a top 10 global airline – and Saudi Electricity Company, which is among the world’s top 10 power companies by generation capacity.

Given their size, many of these companies constitute a sizable chunk of their national gross domestic product (GDP). That gives them an outsize influence on the direction of corporate sustainability action in the region for two reasons.

First, raw numbers: a decisive drop in emissions from any one of these companies will have a notable impact on emissions from the region as a whole.

Second, stature: Many of these SOEs are national champions and often, other companies look to them for leadership and will follow their example. As such, MENA SOEs offer a crucial lens through which to assess the progress of companies in the region on climate change and the sustainability agenda.

When we looked at the climate commitments of this subset of companies, we found that MENA SOEs are ahead of other businesses in the region. Among MENA SOEs:

  • All SOEs are actively pursuing on emissions reduction measures and 44% are working on toxic emissions (nitrogen oxides – NOx, sulphur oxides – SOx).
  • More than 70% of SOEs have initiatives for reducing water consumption/wastewater management and 67% have initiatives on circularity or waste reduction.
  • 30% of SOEs have initiatives on nature-based solutions.
  • The proportion of SOEs with a sustainability initiative are starkly higher than the broader business community in the region, as represented by our analysis of the largest 200+ companies in the region.
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The largest state-owned enterprise led the business community on sustainability actions in the MENA region.
The largest state-owned enterprise led the business community on sustainability actions in the MENA region. Image: Bain & Company

Government ambitions

In the last two years, we have witnessed significant momentum towards setting national decarbonization targets in the region. Now, nearly 60% of the region’s emissions are covered by net zero ambition representing (based on the nine largest economies of the region) and state-owned companies will be essential to meeting those targets given their size and stature.

Several SOEs in the regions have already made eye-catching investments in sustainability initiatives. Saudi Aramco, for example, is investing in one of the world’s largest carbon capture and storage plants, while the UAE’s Masdar is involved in building the world’s largest concentrated solar power plant.

In our subset of the largest 20 SOE emitters, nearly 90% have plans for renewable energy and more than 80% have adopted energy efficiency measures. Most interestingly, 50% of them have started working on new pathways such as clean hydrogen and carbon capture, utilization and storage and 30% have plans for sustainable aviation fuels.

However, MENA SOEs can still be much more ambitious when it comes to reporting and disclosures. We found only 30% of this group has adopted a net zero target, 20% have set a roadmap for it and none have aligned the roadmap with SBTis. Similarly, only 5% have institutionalized CDP disclosures.

Share of top 20 MENA SOEs' actions, by emissions.
Share of top 20 MENA SOEs' actions, by emissions. Image: Bain & Company

A catalyst for other companies

Governments can play a part in setting ambitions and in the MENA region, increasingly, they are. However, companies undertake most economic activity and thus, the private sector will ultimately need to bear the responsibility of delivering sustainability action. In the MENA region, the 20 largest SOEs are taking the lead in some areas but must still deliver more consistent emission measurement, disclosures and target setting. Going forward, they can help smaller private and public companies in the region make rapid progress by:

  • Working with suppliers to raise ambition and action: Given their huge procurement budgets and large supplier bases, SOEs can significantly influence behaviour among other firms. Mandating environmental, social and corporate governance (ESG) weightage in procurement, for example, would incentivize suppliers to measure emissions, make disclosures and formulate reduction plans.
  • Setting an example with net-zero commitments: SOEs should close the gaps that still exist with international peers on net-zero commitments and align the roadmap with global best practices, to set an excellent example for other companies in the region.
  • Raising awareness among consumers: SOEs provide many basic services such as electricity and water to MENA consumers, so they have significant leverage to change behaviour among populations with some of the highest rates of per capita energy usage globally.
  • Sharing best practices to bridge the capability gap on sustainability reporting: Large SOEs can share knowledge with other companies in the region on methodologies, frameworks and best practices to promote emission measurement, disclosures and target setting. They can either align their plans with existing global standards (e.g. CDP, SBTi, TCFD (task force on climate-related financial disclosures) or engage with the larger community to tailor them for the region. As they procure more services from international environmental reporting consultants, they can also encourage them to set up offices and offer their services in the region.
  • Partner with governments on policy making: SOEs can work with MENA governments to help them phase in reporting requirements for listed and private companies as capabilities and familiarities with frameworks grow within the region’s business community.

The Forum, in its partnership with Bain & Company, is working with stakeholders in the MENA region, including large SOEs, to support such change as part of the Forum’s Leaders for a Sustainable MENA (LSM) initiative. Together we are building a coalition of climate-conscious and change-hungry partners who want to combat climate change and bring climate adaptation to the forefront. As the world moves towards COP28, LSM aims to create a platform of dialogue where cross-border public-private partnerships can grow to deliver a net zero transition for the MENA region.

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