In 2016, Qatar Stock Exchange became a signatory to the United Nations sponsored Sustainable Stock Exchange initiative. Why did we do this?

The Sustainable Stock Exchanges (SSE) initiative promotes corporate investment in sustainability by providing a platform that allows exchanges, in collaboration with investors, listed companies, regulators, legislators and international organisations to assess how they can enhance performance on ESG issues and encourage sustainable investment.

Because we provide the platform for listed companies to raise equity finance and for investors to allocate capital, we have a unique role to play in the empowerment of sustainable finance. We do this by providing guidance to our issuers on sustainability and the adoption of ESG principles for their own benefit and that of investors and the community at large. Being signatories to the SSE initiative, we are able to rely on support and best practice guidance from our peers across the globe and to learn from their experience in dealing with ESG issues.

Our overriding aim is to ensure that matters of sustainability and ESG become and remain important considerations for both our issuers and our investors. As part of this, and our commitment to the SSE, we issued guidance on ESG reporting in 2016 for the benefit of our listed companies and investors. We also launched a web platform, which allows our listed companies to record their progress in adopting sustainability measures and our investors to view and use that information when making their own investment decisions. This can be viewed at the following address: QSE Sustainability Platform

So what is ESG? Environmental, Social, and Governance (ESG) are the three central factors that allow investors to measure the sustainability and societal impact of an investment in a company.

In the past, our principal concern as investors was whether a company in which we invested was able to provide us with a capital gain and dividends over time, without any reference to matters of sustainability or corporate responsibility. More recently, however, environmental, social, and governance (ESG) criteria have become additional, increasingly important considerations for investors when evaluating companies in which they might want to invest.

So what are these criteria and why are they important?

Environmental criteria demonstrate how a company performs as a steward of the environment. These will include, among others, measures of energy use and the size of a company’s carbon footprint, the volume and type of waste and any pollution that it may produce and its consumption and depletion of natural resources.

Social criteria demonstrate how a company treats people, especially its own staff, and how it interacts with the communities it serves. Items of note will include the way a company treats its suppliers, does it contribute to the development of local communities, do the company’s working conditions show regard for the development and health and safety of its employees.

Governance criteria demonstrate, among other things, how a company is governed, whether there are any conflicts of interest among its board members, how it treats its shareholders and the legality and nature of its operations.

These environmental, social, and governance (ESG) criteria are formulated to help investors find companies with similar values to their own. Although there are unlikely to be any companies which will pass every test, it is important that investors are provided with sufficient information for them to decide what is most important to them, and to assist them in making their investment decisions.

An ethical approach to investing used to focus on avoiding so called “vice” stocks, companies involved in, for example, munitions, tobacco, alcohol or gambling. More recently, this has also included companies that exploit natural resources, particularly those in mining and fossil fuel extraction. It was generally considered that this type of investment led to lower returns, because it excluded many high performance companies in those very sectors.

However, with ESG investing, those companies that demonstrate corporate responsibility by showing commitment to minimising any harmful impact on the environment or communities in which they operate are not necessarily excluded from consideration. Empirical evidence now suggests that utilising ESG metrics to invest in sustainable assets is just as profitable, if not more so, particularly during times of market stress.

In many jurisdictions, the provision of non-financial data incorporating ESG metrics is now a mandatory requirement and this is accelerating the adoption of ESG investment screening. Institutional investors now routinely screen companies based on ESG data, and exclude those with low scores. This clearly has a positive impact on those companies who score highly and may be included in one of the many sustainability indices.

Individual investors concerned about sustainability and wishing to carry out their own screening using ESG metrics are becoming better served by both companies and service providers. They are also able to directly invest in mutual funds and ETFs that track sustainability indices.

QSE have implemented a web platform that allows investors to view and assess the performance of QSE listed companies. It can be found here: QSE Sustainability Platform

For companies, demonstrating corporate responsibility has never been more important. As ESG investing becomes ever more prevalent, companies concerned about the value of their brand are how they are perceived by their customers and investors will need to become more transparent in matters of sustainability.

In many international jurisdictions, non-financial reporting is now mandated by regulators. Although not currently the case in Qatar, new regulations will be introduced in due course, mandating that all listed companies provide sustainability reports, based on QSE guidance.

Companies should be aware that there are benefits that accrue when they adopt an effective sustainability strategy, including:

• Improved performance There is now considerable empirical evidence that supports the view that ESG screened investments outperform, particularly during periods of market stress
• Improved financial indicators Evidence from MSCI™ suggests that companies with high ESG scores have a lower cost of capital and less volatile earnings than those with low or zero ESG scores
• Improved investability investors are more inclined to invest in companies with high ESG scores and a positive approach to sustainability
• Preparedness. Companies adopting sustainability strategies now will be better prepared when regulator mandated reporting is implemented

Whilst the QSE Guidelines are currently voluntary, globally, mandated ESG reporting is increasingly the norm. Qatar and its listed companies can expect that in due course reporting material ESG metrics and in the future sustainability reports will become mandatory.

QSE has published guidance for listed companies on sustainability and ESG reporting. This can be found here: QSE ESG Guidance. We will regularly update our guidance in line with international best practice.

We also provide a platform allowing each company to record and monitor their ESG performance against their peers. This can be found here: QSE Sustainability Platform. We will continue to maintain and update this platform for the benefit of listed companies and investors alike.

There is little doubt that ESG investing will continue to grow in importance and that regulators and investors will demand more and more information from companies to demonstrate their commitment to sustainable development. By enhancing the quality and reliability of that information, companies will benefit from improvements in their ESG ratings leading to potential inclusion in international sustainability indices. This will improve their visibility, aid customer retention and financial performance and attract more investors.

In addition to the support that we provide to our listed companies and investors, we at QSE are also committed to ensuring that we play our own part in Qatar’s sustainable development. We are doing this by reducing our impact on the environment, adopting best practice Corporate Governance and being socially responsible in all that we do. Below is a summary of some of our recently implemented initiatives

Environment

• Controlling and reducing the use of single-use plastic, particularly bottles, with a view to eliminating them from our premises by the end of 2020
• Reducing the use and waste of paper through process automation / digitization and centralized and controlled printing services
• Reducing power consumption through active control and shutdown of devices
• Reducing the use of water
• Introducing waste management and recycling

Social

• Promoting diversity in the workforce – currently 20% of directors are female
• Maintaining a male / female pay ration of 1:1
• Investing in staff development and talent management
• Actively engaging with the local investor community with regular on-line and physical education courses and seminars
• Supporting schools and universities with sponsorship of research competitions and providing apprenticeship programme

Governance

• Maintaining separation of CEO and Chairman’s roles
• Maintaining a majority of non-executive directors on the board, with varied skills
• Ensuring that all board committees have defined and published charters
• Ensuring 100% conformity with Corporate Governance guidelines prescribed by regulator