Insights: The evolution of financial communications in the Gulf region

Image: Supplied

The Gulf region has undergone a remarkable transformation, driven by financial market regulations, IPOs, and growing commitments from businesses to enhance their engagement with stakeholders across finance and media. From 2022 until September 2023, GCC markets raised $22.4bn through 59 offerings. These are all businesses going through transformative processes from private to public companies and need to go through carefully regulated processes. This includes communicating with their employees, customers, investors, stock markets, and financial regulators – to effectively rationalise their listings and inspire trust across all stakeholder groups.

Across the region, this development has been accompanied by increasingly sophisticated regulations, new financial instruments, and disclosure requirements. One example of this is the recently introduced derivative trading by the Abu Dhabi Stock Exchange in late 2021, which provides investors with greater opportunities, increased leverage, wider market exposure and hedge capabilities. A new wave of institutional investors is set to be attracted by this innovative financial environment.

Effective financial communication

However, tapping their investments requires skilled corporate communications and investor relations to effectively engage investors as well as buy- and sell-side analysts. Beyond this, understanding institutional, as well as retail investor demands, and carefully engaging media will be key. If done right, taking these steps will help regional companies grow and ultimately support the development of regional markets.

Corporate management teams are now more than ever on the lookout for skilled communications advisors to help navigate these growing complexities. In particular, to tackle issues that transcend capital markets, operations, finance, marketing and media – launching green bonds, preparing for capital markets days, developing investor presentations, and stress testing executives for media questions. This is reflected in the increasing qualification and credential requirements for investor relations and corporate communications professionals. This includes affiliation or certification requirements with professional associations such as the Middle East Investor Relations Association, which has more than doubled its membership since its inception in 2015.

ESG regulation in the spotlight

Enhanced reporting expectations are particularly prominent across environmental, social and governance (ESG) factors. The region has recognised the importance of integrating ESG factors into commercial and investment strategies to give investors peace of mind that ESG is no longer thought of as a separate workstream, but rather as baked into the commercial strategy. Consequently, businesses have grown more sophisticated at demonstrating their commitment to sustainable and socially responsible practices. Investors now demand more transparency regarding companies’ management of their environmental impact, board governance, community engagement, and upholding ethical standards.

To address this, the company’s commitments to ESG principles will also need to be conveyed through their financial communications, to educate investors, analysts, and shareholders.

Often driven by institutional investors’ evolving fiduciary duties, regulatory bodies have responded to the changing ESG expectations by imposing more stringent regulations, intended to ensure greater transparency, disclosure, and adherence to international best practices. For example, the UAE government, through the Securities and Commodities Authority, mandates all listed companies to publish an annual sustainability report disclosing ESG impact, commitments, and policies.

Since the launch of this regulation in 2021, more than 130 listed entities are now subject to this compliance requirement. A well-aligned reporting approach can ensure both a tangible impact on company perception and a measurable effect on its market value. By conducting a dedicated study, Deloitte found an average 10-point difference in ESG score is associated with an EV/EBITDA multiple that is approximately 1.2 times higher. In other words, a higher ESG score corresponds directly with a higher valuation – and communicating both ESG efforts and ratings is an essential part– an important lesson for companies.

There is never a silver bullet approach when it comes to the best way to integrate ESG into financial communications, but there are best practices. For ESG integration into financial communications, our main points of advice that applies across the board are to ensure alignment, minimise jargon, emphasise value drivers, and simplify and visualise complex data. And, as much as possible, integrate sustainability efforts into the commercial strategy – rather than keeping the two separate.

Investing in the right talent

To harness the growing interest from investors in the Gulf region, companies must prioritise the recruitment and development of skilled corporate communicators and investor relations staff. This is instrumental in shaping the narrative around a company’s financial health, growth prospects, and commitment to ESG principles. Investing in the right talent and expertise will ensure companies are able to maximise their ability to tactically engage investors and foster long-term relationships with stakeholders.

Skilled communicators should be positioned to work closely with the C-suite and effectively convey a company’s strategic vision. A careful and strategic approach to strategic communications allows companies to differentiate themselves in a competitive market and attract increasingly discerning investors and job seekers alike. It is also critical to deal with business-critical situations or exercises, such as investor targeting, investor relations(IR) policy development, acquisitions, post-merger integration, IPOs, crisis communications and executive positioning.

In this evolving landscape, investor relations professionals play a crucial role in bridging the gap between a company, potential investors, and existing shareholders. Responsible for conveying financial performance, strategy, and outlook to investors, they must be equipped with the knowledge and skills to communicate complex financial information effectively and navigate a jargon-heavy industry. In this context, investing in robust IR (investor relations) training can go a long way in the Gulf region, given the pace of regulatory changes.

Meeting market demands

Over the past few years, the Gulf region has established itself as a viable destination for investors seeking stability and opportunities for capital allocation – emerging as a haven during times of global upheaval and uncertainty. Examples include the Russia-Ukraine conflict as well as oil and gas shortages and some disruptions caused by the Covid-19 pandemic. Naturally, the geographic position as a halfway point between Europe and Asia – and the tax-free environment are notable benefits.

Gulf nations have made significant improvements in the diversification of their economies, hastening transformation policies after the onset of the pandemic and offering many advantages over a Europe that continues to struggle through recovery.

The evolution of financial communications in the Gulf region reflects a broader trend of increasing sophistication in global financial markets. In our conversations with corporates and investors in the region, the first questions regarding our capabilities often touch on investor relations and financial communications. These conversations now increasingly revolve around ESG practices, transparency, and compliance with regulatory standards.

To capitalise on the opportunity that increased global investor attention offers, companies in the Gulf must invest in skilled corporate communicators and investor relations professionals. Doing so will be an important part of the puzzle, helping the region position itself as a hub for responsible and sustainable investment, driving growth and development for years to come.

The writer is a senior consultant and certified investor relations officer at Kekst CNC.