Qatar’s ESG Journey: Past, present, and future through a legal lens

Overview

The State of Qatar is becoming increasingly proactive on environmental, social and governance (ESG) issues. The continuing evolution of the ESG agenda in Qatar in recent years has galvanised the appetite for a legal framework to underpin these developments. Here, we take a look at Qatar’s ESG journey so far and the regulatory developments that are driving this focus and ambition.

The term “ESG” was coined in 2004 when then-UN Secretary General Kofi Annan commissioned a report to consider ways to integrate environmental, social and governance values into international capital markets. The resulting report, published in 2005 and entitled “Who Cares Wins”, boldly declared that ESG values not only contributed to a better society, but to “more stable and predictable markets, which is in the interest of all market actors.” Today, ESG has become a key priority globally, regionally and locally in Qatar.

The ESG journey in Qatar

The Qatar National Vision 2030 (QNV 2030)¹ was launched in October 2008, two years before the country was awarded the FIFA World Cup 2022, which remained in the spotlight over the past decade.

QNV 2030, among other things, established Qatar’s ambition to “transform into an advanced society”² by focusing on four key pillars, namely:

Human
Social
Economic
Environmental

The QNV 2030 report was launched long before the term ‘ESG’ became so embedded in the public discourse, it nevertheless reflected the same values: protecting the environment, promoting social justice, and ensuring corporate governance and responsible business practices.

Beyond QNV 2030, Qatar’s commitment to ESG has been reflected in a wide range of legal sources, including:

The 2015 Commercial Companies Law and its 2021 Amendment
The Qatar Financial Market Authority (QFMA) Corporate Governance Codes (2014 and 2016)
The Qatar Stock Exchange (QSE) ESG Guidelines (2016)
The establishment of the Ministry of Environment and Climate Change in 2021
Several reforms to the country’s labour laws (as recently as 2022)

Qatar’s focus on environmental sustainability and economic diversification

Vast natural gas reserves and their development in Qatar over the past few decades has led to the country having one of the world’s highest GDPs per capita. That said, the government has actively taken steps to diversify the local economy and reduce its reliance on hydrocarbons.

Qatar’s winning bid to host the FIFA World Cup 2022 led to a decade of rapid development in non-oil sectors, namely construction, transportation, infrastructure, tourism, and sports. Additionally, Qatar used the World Cup to showcase many bold environmental initiatives, including hosting the first carbon-neutral tournament in the history of the competition.

A number of innovative sustainability measures were implemented, including moving 25% of public buses to electric for use during the tournament and several of its stadiums received 5-star Global Sustainability Assessment System (GSAS) ratings³. These sustainability measures - as well as the purchase of 1.8 million in carbon offset credits (equivalent to 1.8 million metric tonnes of CO2) - meant that Qatar was able to host the first carbon-neutral FIFA World Cup. This is especially remarkable when comparing the 2022 event with the 2018 World Cup in Russia (2 million tonnes of CO2) and the 2016 Olympics in Rio de Janeiro (4.5 million tonnes).

Aside from the FIFA World Cup, Qatar has made many significant developments in the environmental sphere. The Ministry of Environment and Climate Change (MECC) was established in 2021, previously a sub-division within the Ministry of Municipality and Environment. The MECC is tasked with achieving Qatar’s National Environment and Climate Change Strategy and enforcing the relevant environmental regulations, including the Environmental Protection Law no. 30 of 2002 and its Executive Regulations no. 4 of 2005.⁴

Other developments include:

The introduction of Qatar’s first “Green Bonds” and the development of sustainable finance in Qatar⁵
Qatar Development Bank’s (QDB) launching a Green Financing program for eco-friendly projects and companies⁶
The introduction of the QFMA Governance Code, which encourages listed companies to consider the interests of the natural environment in addition to other traditional stakeholders (discussed in more depth below in this report)
The Qatar Stock Exchange ESG Guidelines, which encourage listed companies to report on their environmental performance (discussed in depth below)
The development of Msheireb and Lusail - both ‘Smart Cities’ specifically designed to maximise sustainability and minimise emissions
The Doha Metro and Lusail Tram - a world-class rail network which was unveiled in phases in the years preceding the World Cup and transported 18.2 million total passengers during the tournament
The Al Kharsaah Solar PV Independent Power Producer Project, which harnessed solar power to fuel air-conditioning in seven of the eight stadiums⁷

In 2016, the Qatar Stock Exchange joined the United Nations’ Sustainable Stock Exchanges Initiative (“SSEI”),⁸ committing to promoting sustainable practices in Qatar’s capital markets and defining success as the “triple bottom line of profit, planet and people”.⁹

In the international legal space, Qatar may soon be impacted by imminent EU legislations, including the Carbon Border Adjustment Mechanism Regulations (CBAM), which would require disclosing carbon footprints (as early as October 2023) for certain products imported into the EU (including products which Qatar already exports). Later, starting 2026, it would also be necessary to pay for the carbon footprint of covered products imported to the EU. Consequently, we expect other countries to follow suit and begin implementing matching carbon charges or carbon taxes at the local level to ensure that carbon revenues are kept in the country of origin and not claimed by the EU.

Similarly, the EU’s Corporate Sustainability Reporting Directive (CSRD), announced in April 2021, could substantially increase sustainability reporting obligations for some Qatari companies with a presence in Europe.

Despite these developments, some experts have called for further expansion of environmental regulation in Qatar, including the adoption of a mandatory “cap and trade” system.¹⁰

The changing social legislative framework in Qatar

Under the Social pillar of ESG, Qatar has made significant progress in recent decades across a wide range of social issues, including education, health, gender, disability and labour rights.

The country’s Social policy is highlighted in its 2004 Constitution,¹¹ which contains a number of key legal provisions, including:

Equality under the law and prohibition of discrimination on the basis of sex, race, language and religion (Article 35);
The prohibition of arbitrary arrest, detention, and search (Article 36);
The right to privacy (Article 37); and
The right to education, which the State shall endeavour to provide to its citizens free of charge (Article 49)

The inclusion of women in education has also consistently improved in Qatar, with Qatari women recently outnumbering Qatari men in some sections of higher education.¹²

Labour laws have also developed in recent years,¹³ with Qatar implementing the following measures:

The introduction of a minimum wage
The expansion of heat stress protection measures, including prohibitions on outdoor work during summer months at certain daytime hours (Ministerial Decree 17 of 2021)
The issuance of Law No. 15 of 2017, which regulates the relationship between domestic workers and employers and protects their rights in accordance with the International Labour Organisation
The establishment of the Workers’ Support and Insurance Fund, which protects workers from the impact of overdue or unpaid wages in instances where the employer has gone out of business or been forced to close due to illegal activity (Law No 17 of 2018)
The issuance of Law No. 21 of 2015. which introduced provisions granting the freedom to change jobs, prohibit passport confiscation and increase employer-employee transparency

The QSE’s ESG guidelines set out a list of environmental, social and governance KPIs to assess company performance. Under the Social pillar, the QSE lists a dozen KPIs, including percentage targets of Qatari nationals in the company’s workforce, employee turnover; percentage targets for women representation; and human rights-related factors (e.g. adherence to a written human rights policy and number of human rights grievances over a period of time).

Improving corporate governance through transparency and regulation

Qatar has also undertaken measures to ensure good corporate governance and transparency. The Qatar Financial Markets Authority (QFMA), which supervises listed companies, issued its Governance Code to encourage main market companies to carry out compliance with corporate governance regulations.

The QFMA’s two-tier governance system sets Governance Codes for companies listed on both the Main Market of the Qatar Stock Exchange (2016)¹⁴ and companies listed on the Venture Market (2014).¹⁵ Although there is a good deal of overlap between the two, the Venture Market Governance Code is slightly less stringent in order to provide flexibility to SMEs that have taken the leap in going public.

In late 2022, the QFMA published a draft amendment to its Main Market Governance Code. The draft amendment includes a number of provisions that reflect a development in the corporate governance landscape in Qatar aiming to bring it in line with international best practices.

The QFMA seeks to ensure that all listed companies adhere to appropriate financial disclosure regulations, maintain high standards of corporate governance and abide by anti-corruption laws and regulations. Article 39 of the QFMA Governance Code requires every covered company to “do its part in community development and promotion, and the preservation of the environment through effective and meaningful participation in corporate social responsibility.”

The Qatar Stock Exchange published its ESG Guidance in December 2016¹⁶ to assist all listed companies wishing to incorporate ESG reporting into their existing disclosures. Although ESG reporting is voluntary as of February 2023, the QSE encourages listed companies to engage in ESG reporting and has indicated that transition to a mandatory reporting regime is likely.¹⁷

The flurry of IPOs and Direct Listings on the Qatar Exchange since 2021 signals that many private companies in Qatar are embracing the challenges of increased corporate governance that public companies must comply with and discovering that the benefits of corporate governance outweigh them.

What’s next for ESG in Qatar?

Qatar’s commitment to environmental, social and corporate governance development is evident in its recent accomplishments and future plans - and businesses in Qatar have an opportunity to contribute by leveraging recent regulations and legislations from multiple government ministries and agencies that we have outlined in this article.

With the FIFA World Cup in the rear window and Qatar National Vision 2030 on the horizon, it is reasonable to expect that Qatar will continue to develop its ESG framework and establish itself as an ESG leader in the region.