ESG fails to drive profit in the Gulf, in sharp contrast to the rest of the world

ESG performance does not lead to better stock market performance in the Gulf, nor does profit boost sustainability efforts in the region, finds new research by Nova School of Business and Economics (Nova SBE) and ESMT Berlin.

The dataset covered more than 4,400 monthly ESG score observations and nearly 9,000 stock return observations between 2009 and 2023.

Conducted by Professors Rodrigo Tavares (Nova SBE) and Catalina Stefanescu-Cuntze (ESMT), alongside Catarina Sá (Teaching Assistant at Nova SBE), the most extensive academic study ever conducted on corporate sustainability in the Gulf region analysed 14 years of data from publicly listed companies across Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

The overwhelming majority of studies focus on a single hypothesis: that companies investing in sustainability tend to be more profitable. This work goes further and also asks the reverse: do financially successful companies channel part of their resources into ESG practices?

In both directions, the results revealed weak, inconsistent, and statistically non-robust relationships. This is unlike evidence from Europe, North America, and Asia.

Evidence of bidirectional causality was found in only two out of 54 firms (approximately 3.7% of the sample), while an additional ten firms (approximately 18.5%) exhibited unidirectional causality—either from ESG to financial performance or vice versa.

This shows that, while in mature markets investors reward sustainable practices with higher stock valuations, in the Gulf the adoption of ESG metrics does not stem from the market, but rather from public policies and national economic diversification strategies.

“In the Gulf, ESG is driven more by government policy than profit. Our research reveals that, contrary to global trends, ESG performance is a political lever, not a financial one. It has not yet translated into market force, like we see in the rest of the world,” says Rodrigo Tavares, Adjunct Full Professor of Finance at Nova School of Business and Economics.

“This challenges the prevailing narrative that sustainability drives market value and suggests that, in the Gulf, ESG is primarily a tool for state-led economic transformation, not shareholder returns. We should reflect critically on the universality of the argument that “sustainability pays off”, from a financial perspective," adds Professor Catalina Stefanescu-Cuntze.

The paper, “ESG-financial performance in the Gulf region: a bidirectional examination”, was published in Sustainable Communities in September 2025. It can be found here.

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For more information, a copy of the paper or to speak with the researchers, please contact Alex Lopez on alex@bluesky-pr.com, or call +44 (0)1582 797959.