The heterogeneous impact of Environmental, Social, and Governance metrics on natural resource rent in Middle Eastern countries, Dr Shomaila Habib
Dr Shomaila Habib
COMSATS University, Islamabad
Pakistan
Abstract: There is immense pressure on Middle Eastern countries to utilize oil and gas resources effectively for a sustainable future and to maintain their position in global energy markets. This study empirically evaluates ESG metrics' impact on natural resource rent in oil and gas-rich Middle Eastern countries. The study uses a sample of the top oil and gas-producing countries in the Middle East region from 2000 to 2022. It employs a comprehensive ESG index and individual ESG metrics, combining all three ESG indicators to form a composite ESG index through Principal Component Analysis (PCA). The study then applies the panel estimation Generalized method of moments (GMM) technique to examine the association among the relevant variables. The findings suggest that the ESG index negatively influences natural resource rent, impacting oil rents more substantially than gas rents. The environmental and governance indicators show a significant relationship with natural resource rents, while the social indicator has a weaker relationship with the dependent variable. These results underscore the potential benefits of a strong institutional setup and stringent environmental regulations in mitigating the resource curse hypothesis in the Middle East region, offering hope for a more sustainable future. Middle Eastern countries should focus on tightening ecological rules and improving governance to safeguard their natural resource revenues, especially as ESG factors exert additional pressure on oil rents. Investing in cleaner energy sources, such as gas and renewables, can help facilitate this transition. While social issues are less critical, gradually enhancing education, healthcare, and equity will bolster their long-term position. Most importantly, countries should diversify their economies beyond oil and gas and adopt clear ESG standards, a necessary step to remain appealing to global investors.
Keywords: ESG, Natural Resource Rent, Middle East.