In an exclusive conversation with Sustainability Middle East, Dr Ioannis Ioannou, Associate Professor of Strategy and Entrepreneurship at London Business School, explains why “trapped competencies” — hidden capabilities that prepare firms for a sustainable future — may hold the key to long-term competitiveness.
From Saudi Arabia’s Vision 2030 to the UAE’s Net Zero 2050, he outlines how Gulf companies can surface these strengths, influence global standards, and position themselves as leaders in the transition economy.
The excerpts...
Professor Ioannou, could you start by explaining the concept of “trapped competencies”? Why do they matter strategically, and why do you believe global markets have not yet fully recognised or rewarded them?
Trapped competencies are capabilities that some firms have already built which prepare them to succeed in a more sustainable economy, but which current markets rarely see or value. These can include things like designing products for circularity, investing steadily in workforce resilience, or cultivating long-term stakeholder trust. What unites them is not the specific form they take but the fact that they are “ahead of the system”: they anticipate the way business will need to operate once ecological limits and social priorities are fully integrated into the economy. Strategically, this matters because these competencies form the building blocks of what I call aligned capitalism—a system where sustainable practices are not punished but rewarded. Yet most valuation models, credit ratings, and incentives remain tied to short-term extraction and efficiency. That is why these future-fit capabilities remain hidden. Their power lies in being ready when the system inevitably adjusts, giving those firms a head start in shaping the rules of tomorrow’s competition.
Looking at the Middle East, particularly Saudi Arabia’s Vision 2030 and the UAE’s Net Zero 2050 strategy, how do you see these national agendas creating fertile ground for firms to develop and surface such competencies?
Saudi Arabia’s Vision 2030 sets out to diversify the economy beyond oil, strengthen new sectors, and improve quality of life. The UAE’s Net Zero 2050 outlines a national pathway for reaching carbon neutrality by mid-century, with a focus on renewable energy, innovation, and sustainable urban development. Both initiatives represent long-term commitments to reshape the foundations of growth.
What makes these agendas significant is the kind of environment they may create for firms. By setting clear policy goals and directing investment toward low-carbon infrastructure, they can shift attention to capabilities that once seemed peripheral. For example, competencies in renewable integration, resource efficiency, resilient supply chains, or inclusive workforce development may find greater space to develop and gain recognition.
These national strategies may not, of course, automatically guarantee that firms with such capabilities are rewarded. Execution challenges, evolving regulations, and global market pressures will continue to shape outcomes. Yet by signalling intent and creating institutional momentum, Vision 2030 and Net Zero 2050 open windows for companies that already possess or are building future-fit strengths.
In this sense, the strategies function less as endpoints and more as catalysts. They help move the system closer to aligned capitalism, where ecological and social realities are built into how value is measured. For companies, the opportunity lies in positioning themselves as partners in this journey. By nurturing trapped competencies and demonstrating how they contribute to national objectives, firms can gradually turn hidden capabilities into visible assets—laying the groundwork for long-term advantage as the region’s economic transformation unfolds.
Many Gulf companies are already investing in renewable energy, circular economy solutions, and inclusive workforce practices. What prevents these efforts from being fully valued by investors and markets?
The issue lies less with the initiatives themselves and more with the design of the economic system. At present, markets are organised around assumptions that privilege immediacy: quarterly earnings, rapid scalability, and asset-light efficiency. These assumptions shape valuation models, credit ratings, and incentive structures, which in turn define what counts as value. As long as the system remains tuned to these priorities, forward-looking practices that build durability, intergenerational benefits, or ecological regeneration remain difficult to capture and often fall outside the frame.
This misalignment is structural. It is not that firms fail to generate benefits, but that those benefits take forms—such as long-horizon resilience, healthier ecosystems, or stronger social foundations—that legacy metrics were never designed to measure. In an aligned capitalism setting, these qualities would be recognised as core drivers of competitiveness. Today, however, they remain peripheral because the prevailing categories of analysis cannot easily register them.
A further obstacle is institutional inertia. Investors, rating agencies, and regulators work within frameworks that evolved for a resource-intensive, linear economy. Updating these frameworks requires both political will and collective coordination, which tend to move more slowly than corporate practice. Until this lag closes, many efforts will remain undervalued despite the strategic advantages they quietly build.
From your research, what steps can companies in the region take to bridge the recognition gap — ensuring that their sustainability and innovation-driven capabilities are better understood and priced by global capital markets?
The recognition gap persists because many of the benefits created through trapped competencies are simply not counted as performance within today’s system. They strengthen resilience, regeneration, and social stability, but they remain outside the categories through which markets allocate capital. For the firms that already possess these strengths, the incentive to advocate for a shift toward aligned capitalism is clear: recognition would not only unlock value within their own business but also accelerate the wider system change on which future competitiveness depends.
One way forward is to work directly with regulators. Companies can share concrete evidence of outcomes that matter over time—such as continuity of supply, workforce durability, or ecological restoration—and demonstrate how these outcomes can be integrated into reporting standards. When credible firms volunteer for pilots or provide data that shows feasibility, they help regulators update the definitions that determine how performance is assessed.
Another pathway is through investors and rating agencies. Many financial actors know their current tools are incomplete, but they lack workable alternatives. Firms that open their books, share methodologies, and co-develop ways of tracking system-aligned outcomes help create the very metrics that will one day determine value.
Collective initiatives add further weight. Pre-competitive collaborations on data, taxonomies, and verification can reduce friction and give these competencies visibility across an entire sector. Similarly, supply-chain agreements that embed system-aligned outcomes into contracts can turn isolated practices into shared norms.
The final piece is narrative consistency. When firms explain clearly what they measure, why it matters, and how it is governed and assured, they provide the transparency needed for intermediaries to take them seriously. Over time, these actions build the infrastructure of recognition, bringing trapped competencies into view and helping shift the rules of competition toward a system aligned with ecological and social realities.
Do you see a role for Gulf-based firms in shaping new performance metrics or influencing global regulators, given their unique positioning at the intersection of energy, innovation, and economic diversification?
Some Gulf-based firms may already be developing competencies that are not yet fully recognised but could become important as the economic system shifts. Their position at the intersection of energy transformation, innovation, and diversification creates conditions where such practices can take root earlier than elsewhere. When this happens, firms in the region are in a position to show why current definitions of performance fall short and how different capabilities might be recognised.
It is important to remember, however, that changing performance metrics and influencing regulators is a global, institutional process. Standards are set through international negotiations, shaped by large capital markets, and refined by transnational regulatory bodies. Gulf companies can take part in this process, but they will do so alongside peers from across the world. Their role is not to drive change alone but to add credible perspectives and evidence to a wider conversation.
One way of doing this is to engage directly in the mechanisms regulators and standards setters already use. These include consultations, industry working groups, and pilot projects designed to test new reporting requirements. Firms that participate actively—by sharing data, opening their practices to scrutiny, and proposing workable approaches—help regulators see what is possible. Another way is to join collective initiatives, where companies pool resources to develop common definitions or verification methods. Regulators often take such initiatives seriously because they demonstrate alignment across competitors, not just individual voices.
For Gulf firms, the incentive to engage lies in the potential to unlock trapped competencies that remain hidden under current rules. By helping to shape the categories that define performance, they make it more likely that the strengths they are already cultivating will be recognised. In this way, they contribute to building the institutional momentum that aligned capitalism requires while also creating a clearer path for their own competitiveness.
What is the strategic advantage of acting early to surface and leverage trapped competencies? How might this help MENA firms leapfrog competitors and become global leaders in the transition economy?
The advantage of acting early comes from being prepared for the moment when markets, regulators, and societies start treating different capabilities as the real markers of performance. Some firms already hold trapped competencies, but under today’s economic logic they are often seen as side projects or extra costs. As the system gradually shifts toward aligned capitalism, those very same capabilities may become decisive.
There are a few reasons why. Firms that move early build experience that cannot be developed overnight. Competencies like long-term planning or working closely with stakeholders take years of steady practice before they become part of the organisation’s DNA. Once they are recognised, these competencies also create strong barriers to entry. They generate trust, provide reliable access to resources, and establish credibility with regulators and communities. On top of that, their value grows over time. A company that has invested consistently in regeneration or inclusion develops relationships, knowledge, and legitimacy that become more powerful as markets learn to reward them.
Take ecosystem restoration as an example. In the old economy, rehabilitating land or protecting water might have been dismissed as philanthropy or just ticking a compliance box. In an aligned system, it looks very different. It is recognised as a strategic capability—one that secures long-term resource stability, reduces exposure to climate risks, and generates ecological assets that can be measured and valued. Firms that acted early here will be stronger when markets classify these outcomes as performance: for example, they will attract capital more easily, secure partnerships on better terms, and align with public priorities in ways that late entrants will struggle to match.
For MENA firms, this dynamic creates a real possibility of leapfrogging. Many competitors elsewhere remain tied to systems that reward the old logic. By surfacing and strengthening trapped competencies now—within the region’s ambitious national agendas—firms can be closer to recognition when frameworks shift. Leapfrogging, of course, doesn’t mean skipping challenges or surpassing every rival. It means entering the transition economy with proven, scaled capabilities while others are still trying to build them. That readiness, built patiently over time, creates the conditions for both influence and leadership as the rules of competition are rewritten.
Could you share any international case studies where companies successfully unlocked such competencies — and how those lessons might be applied to the evolving business landscape in Saudi Arabia, the UAE, or the wider MENA region?
International cases help make the idea of trapped competencies concrete. They show how firms can develop real capabilities that anticipate future demands, yet remain undervalued because they do not fit prevailing definitions of performance. Looking at Etsy, Fairphone, and Costco through this lens illustrates how very different types of competencies can be hidden in plain sight.
Etsy invested early in community and governance. Its platform was built not just to connect buyers and sellers but to empower small entrepreneurs, embed participatory decision-making, and maintain transparency. These were not cosmetic features; they were organisational capabilities that strengthened trust and differentiated Etsy in ways competitors could not easily replicate. Yet when investors shifted the conversation toward short-term growth and efficiency, these strengths were understated in the performance narrative. They continued to operate inside the company but remained unrecognised — a clear case of competencies being trapped by the metrics of the day.
Fairphone is an example from product design and material logic. Its modular phones, conflict-free sourcing, and emphasis on repairability challenged the dominant model of consumer electronics. Here, the capability lay in rethinking design for longevity and transparency — qualities that a future circular economy will need. But because markets still reward scale, low costs, and disposability, these competencies have not translated into recognised advantage. Fairphone shows how firms can be far ahead of their time and still struggle for acknowledgment under current rules.
Costco illustrates workforce architecture as a competency. For decades, it invested in wages, benefits, and internal career development. Analysts often criticised this approach as a drag on margins. Yet these investments built loyalty, stability, and productivity across the workforce. Only in recent years have such practices begun to be valued more broadly as expectations around fairness, workforce resilience, and social responsibility have grown.
The lessons across these cases are important. First, trapped competencies carry value within organisations even when markets do not yet register them. They often sustain trust, creativity, or stability in ways that are not captured by conventional metrics but are nonetheless vital. Second, they frequently challenge the dominant logic of their industries. Etsy questioned what governance should look like in a platform economy, Fairphone challenged the assumption that electronics must be disposable, and Costco challenged the view that labour costs must always be minimised. Firms holding such competencies should therefore expect resistance rather than easy acceptance. Third, these competencies usually involve multiple stakeholders — communities, suppliers, employees, or regulators. This makes them harder to quantify, but also more durable. Once established, they embed themselves in relationships and routines that are not easily undone.
For firms in Saudi Arabia, the UAE, and the wider MENA region, these lessons are highly relevant. Many are operating in economies that are changing rapidly, with strong policy agendas pointing toward diversification and sustainability. The cases show why it is worth paying attention to capabilities that might seem unusual or uneconomic in the short term. They also suggest that resistance is likely when firms push against dominant models, which makes persistence essential. And they highlight that engaging multiple stakeholders can feel messy, but it often creates durability that purely transactional approaches cannot match.
In this sense, the real task for leaders in the region is to spot where such hidden strengths already exist in their organisations and to nurture them with patience. Markets may not reward them immediately, but when the economic system moves closer to alignment with ecological and social realities, these same competencies are likely to emerge as visible and lasting advantages.
Finally, if you were advising boards and CEOs in the Gulf today, what would be your top three recommendations to ensure they turn these hidden capabilities into long-term competitive advantage?
If I were advising boards and CEOs in the Gulf today, I would begin by stressing the importance of recognition. Only some firms hold trapped competencies, and they are often hidden in plain sight because they do not look like “performance” under today’s rules. Boards should ask themselves: where are we building capabilities that might appear uneconomic or unconventional now, but align with the social and ecological realities shaping tomorrow’s economy? Naming these strengths explicitly is essential. Without that recognition, they remain underappreciated internally as well as externally.
The second recommendation is to nurture these competencies with patience and commitment. Trapped competencies rarely align with dominant industry logics, which means leaders should anticipate resistance. Practices that depart from conventional measures of efficiency or growth may invite scepticism both inside and outside the firm. The role of the board is to hold the long view, ensuring that these competencies are not abandoned when they do not deliver immediate returns. They are slow to build but, once embedded, they become durable sources of advantage as the system begins to reclassify what counts as performance.
The third recommendation is active engagement with the wider institutional environment. Recognition will not happen automatically. Firms that already hold trapped competencies have a direct incentive to help accelerate system change because their own competitiveness grows as alignment advances. Boards should encourage management to engage constructively with regulators, investors, and peers: for example, providing data that demonstrates new forms of value, contributing to the development of standards, and joining collective initiatives that carry more weight than individual voices. In doing so, companies not only prepare their own competencies for recognition but also help build the very system that will eventually reward them.
For Gulf firms, these three priorities — recognition, commitment, and engagement — offer a pathway for turning hidden strengths into visible advantages. The region’s economies are undergoing rapid transformation, with bold agendas for diversification and sustainability. Firms that can identify their trapped competencies, nurture them patiently, and play an active role in shaping the institutional context will be better positioned when recognition comes. And they will not only benefit individually but also contribute to the broader shift toward an economy aligned with ecological and social realities — the system in which their long-term success will ultimately depend.
Dr Ioannis Ioannou
A leading expert in sustainability leadership and corporate responsibility, Dr Ioannis Ioannou's research provides valuable insights into the challenges and opportunities organizations encounter when developing sustainable business models. His award-winning academic work on strategic ESG integration, coupled with his focus on the investment community and financial markets, has established him as a thought leader in the field.