In a recent whitepaper, Acuity Knowledge Partners asked a great question: Is the Middle East at the core of global ESG development? The short answer is yes, but it’s complicated. In this article, we will briefly assess the ESG investing landscape, and delve into some case studies across the region, especially with regards to public wealth mobilization.
In PWC’s 2024 Middle East survey 80% of respondents surveyed have adopted a formal ESG strategy (up from 64% in 2023), and of the companies surveyed, 20% more plan to access green loans and bonds-up, than in 2023.
| ESG investing landscape: Regional progress 2016-24 | |
|---|---|
| December 2016: The Qatar Stock Exchange releases ESG guidelines | October 2022: Saudi PIF announces $3bn green fund |
| June 2020: Bahrain Bourse issues ESG reporting guidelines | October 2022: Saudi Aramco $1.5bn sustainability fund announced |
| September 2020: Egypt is the first Middle East country to issue a green sovereign bond, for $500m | November 2022: UAE & the United States announce $100bn clean energy partnership |
| 2021: Launch of the Saudi Green Initiative & the Middle East Green Initiative | October 2023: MENA Climate Week |
| January 2021: UAE introduces non-mandatory sustainability reporting requirements for companies | In the first nine months of 2024, the Middle East issued $16.7 billion in sustainable bonds, with the UAE and Saudi Arabia leading the way. |
| October 2021: Official announcements of net-zero commitments by KSA, UAE, Qatar & Bahrain | UAE announced Year of Sustainability 2024 |
| November 2021: Saudi Exchange publishes ESG disclosure guidelines | In January 2024, Oman’s Ministry of Finance announced a sustainable finance (SF) framework that identifies seven project categories for green finance |
| October 2022: Oman announces National Net Zero plan & a green hydrogen strategy | In July 2024, Saudi Arabia’s Public Investment Fund (PIF) signed three joint ventures to localize renewable energy projects |
With the growth in the appetite for ESG investing globally, and the sustained regional progress shown in the table above, the Middle East is definitely, holding its own. In the second Forbes Middle East Sustainability Leaders list, in 2024, Forbes highlights significant regional momentum on ESG, especially post COP28. It finds that:
There has been a litany of news headlines demonstrating how ESG investing is going mainstream in the region recently. In the UAE for instance, the government’s commitment to sustainability is clearly reflected in its designation of 2024 as the “Year of Sustainability” aligning with the UAE’s ambitious Net-Zero 2050 Strategy. This is indicative of wider moves in private and public sovereign wealth toward ESG- related investments by the Gulf Cooperation Council (GCC) countries. Below are some important developments
| Country | 2024 ESG-Related Progress |
|---|---|
| Qatar | QNB Group contributed $3.5 billion to green loans in 2023 and coordinated Qatar’s first $2.5 billion green bond issuance in May 2024. |
| UAE | Emirates NBD has facilitated over $20.4 billion in green, social, and sustainability-linked transactions since 2021. |
| Abu Dhabi’s EWEC aims to provide 60% of the emirate’s total power demand from renewable and clean energy sources by 2035. | |
| Mashreq aims to facilitate $30 billion in sustainable financing by 2030. | |
| Abu Dhabi’s EWEC is aiming to provide 60% of the emirate’s total power demand from renewable and clean energy sources by 2035. | |
| Saudi Arabia | Saudi Awwal Bank plans to grow its sustainable financing and investments to $9 billion by 2025. |
| Saudi Arabia’s Public Investment Fund (PIF) signed three joint ventures to localize renewable energy projects. | |
| ACWA Power is leading the development of 70% of Saudi Arabia’s renewable projects under PIF’s renewables program. | |
| Oman | In January 2024, Oman’s Ministry of Finance announced a sustainable finance framework. The framework identifies seven project categories that are available for green finance in the country. |
Source: Morgan Lewis.
ESG investing & Sovereign Wealth: An overview
ESG factors are seen as increasingly important to the effective risk management of sovereign wealth investment activities, especially in terms of maintaining long-term credit worthiness. According to data from the Invesco Global Sovereign Asset Management Study, just under 57% of central banks and 25% of SWFs in the Middle East are focusing on direct green infrastructure investments and green bond allocations.
ESG-related sovereign wealth funds are therefore big news in the Middle East in 2024, and the progress in such a short time is staggering and inspiring. One notable example is that of The Public Investment Fund (PIF) of Saudi Arabia. The PIF was established as the leading investment power in Saudi Arabia with an enhanced role in the transformative economic and social reform roadmap Vision 2030. The PIF was also ranked 1st across all Middle Eastern SWFs assessed against the ‘Global Sovereign Wealth Fund’ (GSWF), in its fourth Governance, Sustainability and Resilience (GSR) Scoreboard.
In 2024 it now requires capital expenditure of $19.4 billion for its eligible green projects, with $5.2 billion already allocated as of June 2024. This commitment forms part of the PIF’s ongoing dedication to sustainable finance, as evidenced by its recently published second Allocation and Impact Report. The PIF ESG allocation strategy focuses on the following themes:
The allocation report also indicates specific eligibility criteria. Eligibility is strongly linked to projects that ‘contribute to the United Nations’s Sustainable Development Goals (SDGs) and that manage ESG risks effectively, with its corresponding impact methodology covering projects that are either already in operation or under construction. With SA’s Green Finance focus, and PIF as its flagship SF vehicle), it’s no surprise then that PIF maintains strong credit ratings, with an “A1” rating by Moody’s with a positive outlook and an “A+” rating by Fitch Ratings with a stable outlook.
UAE: ESG investing made easy
We have already covered UAE’s leading role in sustainable Finance, both globally and regionally. In terms of sovereign wealth, the UAE’s Sustainable Finance Working Group (SFWG), is working hard to catalyse progress and partnerships. This can be seen with the growth of think tanks and hybrid organisations such as the UAE Carbon Alliance. This alliance forms part of the pioneering ‘UAE Independent Climate Change Accelerator (UICCA), founded and led by Her Highness Sheikha Shamma bint Sultan bin Khalifa Al Nahyan. The UICCA already has some game-changing partners, such as the Bridge Institute, Google, HSBC, and the Abu Dhabi Investment Office (ADIO) among many others. Indeed, the ADIO has its own aim: ‘To create the world’s most sustainable destination for people and businesses’. As part of the UICCA’s work, its Policy Hacks have been very active in 2024, helping bring investors, regulators, and other stakeholders like ADIO, to collaborate to fulfill UICCA’s remit of ‘Growing the green economy’. These developments are vital to mobilising and fulfilling the ESG-related potential of sovereign wealth vehicles. Indeed, accelerators like UICCA and the growing popularity of partnership-focused consultancies such as AGS, are crucial to enabling the collaboration needed to win the climate transition.
The ESG wealth grab
All of this progress therefore bodes well for the ESG investment landscape in the region, and offers wonderful opportunities for ESG investors and the companies they invest in to succeed over the long term. In fact, ESG investing is probably the greatest opportunity for long-term wealth creation in the region. This is partly spurred on by the fact that Ultra High Net Worth Individuals (UHNWIs), are leading the way, with the Middle East coming second only to the US in wealth creation, according to the 2024 Knight Frank Wealth Report. Conversely, when it comes to motivation for creating better social and environmental impact, the report finds that Europeans are the most active, with three-quarters seeking to reduce their emissions, while those based in the Middle East are the least engaged. This may seem like bad news, yet it offers a massive opportunity for ESG leaders to take all the spoils of the inevitable shift to ESG-related investment and sustainable infrastructure.
To this end, recent research by behavioural finance experts Oxford Risk said ESG has become a key factor for investment providers and advisers in the Middle East and North Africa (MENA) region. It also found that 90% of MENA wealth managers say ESG will become even more important for the design of new products over the next three years, and that it will become a more significant consideration for investors when choosing products. Key to this growth will be better technology, with 91% of managers surveyed in the United Arab Emirates, Saudi Arabia, Bahrain, Qatar, Oman, Egypt, and Kuwait, citing it.
ESG investing: Sectors in focus
While ESG investing is all the rage, over 90% of investors in the Middle East still see greenwashing as a hindrance. In terms of making ESG investing more viable in the region, PWC’s recent ‘Middle East Green Finance’ report, identifies four priorities for GCC countries. These are:
The report also highlights six major non-oil sectors in the GCC countries, as being important ‘to quantify the benefits of green investing in terms of economic diversification and growth’. These were agriculture and food, construction, power, transport, water, and waste management. The report estimates that the cumulative GDP contribution of these sectors could reach $2 trillion through 2030. Furthermore, with this expansion of these sectors, PWC estimates GCC countries could add over 1 million jobs by 2030. This growth potential, combined with a desire and need for ESG investing in the region, surely creates a compelling investment opportunity, and a real growth catalyst for companies that can attract that investment.
