Exploring factors influencing long-term ESG readiness: insights from UAE-listed companies

Abstract

Purpose

The purpose of this paper is to investigate the factors that determine the long-term readiness of UAE-listed companies to handle environmental, social and governance (ESG) related opportunities and disruptions.

Design/methodology/approach

In this paper, we use S&P Global Ratings' ESG evaluation to assess the long-term preparedness of UAE-listed companies in addressing ESG risks and opportunities. The score for long-term preparedness provides a forward-looking, cross-sector analysis of a company’s capacity to operate successfully in the future, based on how ESG factors may affect stakeholders and lead to material direct or indirect financial impacts. Specifically, the paper investigates the corporate governance and ownership structure factors that significantly impact the ability of UAE-listed companies to effectively prepare for and respond to long-term ESG risks and opportunities. Our final sample consists of 48 listed companies observed over the period from 2019 to 2021. We employ an ordered logit model for our estimations.

Findings

Our paper findings provide evidence that (1) firm size has a positive significant effect on ESG rating and governance rating implying that larger firms have a robust governance system and strong ability to implement ESG strategies within the organization. (2) Firm performance measured by ROE looks to be an important determinant of ESG rating, environmental rating and social rating. (3) Firm leverage has a positive and significant effect on ESG rating and environmental rating. (4) Board size has a positive effect on social rating and governance rating. (5) Government ownership has a positive and significant effect on ESG rating, environmental rating and governance rating. (6) Institutional ownership has a positive and significant effect on governance rating.

Practical implications

This paper has several practical implications. First, by adopting a forward-looking upstream approach that identifies the determinants of long-term ESG preparedness, it supports the efforts of UAE regulators to enforce ESG strategies among listed firms. Second, the paper provides an overview of the long-term preparedness for ESG risks and opportunities for firms listed on the Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market (DFM), which can aid various stakeholders in making informed decisions. Third, the findings underscore the need to strengthen corporate governance mechanisms to promote sustainable development.

Originality/value

To the best of the authors' knowledge, this paper is the first to explore the determinants of long-term preparedness for ESG risks and opportunities among UAE-listed companies, utilizing a unique dataset to assess ESG performance. The research contributes to understanding the factors influencing firms' long-term readiness to handle ESG challenges and supports regulators' efforts to implement ESG strategies in the UAE market.

Citation

Grassa, R., Naouar, A., Aqeel, M., Khalil, A., Hamdan, B. and Nader, T. (2024), "Exploring factors influencing long-term ESG readiness: insights from UAE-listed companies", Management & Sustainability: An Arab Review, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/MSAR-07-2023-0033