Environmental, social and governance (ESG) investment is a megatrend that businesses cannot ignore.
“It is a no brainer. This is growing," says Chafic Jabbour, senior executive officer – head of Mena, Candriam. "When you talk about long-term trends, this is one of the main long-term trends for the future. The way we used to run the world is taking us to a dead end.”
ESG is already big business. Globally, a record $490bn of green, social and sustainability bonds were sold in 2020 along with a further $347bn allocated into ESG-focused investment funds.
For 2021, sustainable-debt issuance is expected to reach $650bn while money flows to ESG funds is set to continue.
Candriam, a subsidiary of New York Life, is an established player in the ESG space. While it manages a portfolio of traditional equities and bonds, sustainable assets account for about $50bn of the $157bn of total assets under management.
“Everybody is talking about the recent pickup in ESG globally over the past five to seven years. But it has been there for a while,” says Jabbour.
ESG investment is one of the main long-term trends for the future. The way we used to run the world is taking us to a dead end
Chafic Jabbour, Candriam
The environment has been the key area of interest for investors so far. “If you look at what people can see or quantify, it is really the E element that grew a bit faster,” says Jabbour. “Although interest had existed since the late 80s and 90s with the Kyoto Agreement, the Paris Agreement was really the game changer,” says Jabbour.
The 2016 Paris Agreement and interest in ESG in general received a major boost on 19 February when US President Joe Biden signed an executive order for the US to rejoin the Paris Climate accord, reversing the earlier withdrawal ordered by former president Donald Trump.
The Middle East is playing a role in combatting climate change and, over the past decade, there have been significant advances in areas such as solar power and, more recently, the development of smart cities.
“The smarter the city, the less transportation and less Co2," says Jabbour. "Saudi Arabia is building the world’s most sustainable city with Neom so there are a lot of positive plans and the region is going in the right direction. It is just a matter of time.
"Europe may have been a leader, but the region is not far behind. A decade down the line you will see a different region.”
S and G factors
As environmental awareness gains traction, the other two elements of ESG are developing. “Over the past couple of years, the S and G elements were growing in importance,” says Jabour.
The Covid-19 pandemic has heightened the importance of the social part of ESG. To be successful companies now have to actively engage and support employees as they struggle with global uncertainty, and operational challenges such as working from home.
“Employee loyalty impacts overall performance. Although we haven’t talked a lot about it, the pandemic has forced us to look at the social aspects of ESG. This is very important. A lot don’t pay attention,” says Jabbour.
The pandemic has obliged companies to look beyond traditional short-term targets and focus on other ways of measuring performance.
“The world used to have a very short-term approach. Listed companies used to focus on the short end of the curve, but as risks increase and, down the line affect your business growth, investors started to realise we should integrate this a lot earlier in the process and ultimately work towards a long-term evolution rather than short-term profits,” says Jabbour.
While traditional investing can rely on basic financial metrics such as profit and loss, the challenge for the industry is quantifying ESG.
“We need a unified and standardised measuring tool for all of these. There are efforts in the right direction, we are getting there,” says Jabbour.
Quantifiable data could have major implications for the region as it seeks to attract foreign direct investment (FDI).
“With ESG promoting transparency and access to data, that should create a lot more flows into the region,” says Jabbour.
Candriam already has experience of relying on ESG as a tool for mitigating risk. “We manage emerging markets equities purely by ESG angle and this has helped us over the years. ESG could be a way to grow local markets, increase liquidity and increase flows into the local exchanges.”
To help facilitate the further development of ESG investment, Candriam is promoting education. It runs the Candriam Academy, which has more than 5,380 members and has delivered more than 11,400 accredited training hours.
It collaborates with several globally respected and trusted partners and accrediting associations, such as the UK Sustainable Investment & Finance Association.
Candriam’s course was added to the DIFC Academy in December 2020. This ESG-focused course is the only one offered by the Candriam Academy on the DIFC platform. It is accredited by the Dubai Legal Affairs Department.
With more money moving into sustainable investment and growing awareness that ESG is a trend that is here to stay, Jabbour says this is a golden opportunity for the region as it continues its development.
“I am confident sustainable and responsible investment will progress rapidly in the region going forward, especially when you consider the important role ESG integration, reporting and transparency could play in promoting the GCC to international asset owners," he says.
"The ESG agenda could offer the breakthrough for the region’s next phase of development, attracting new FDI and capital, as well as boosting liquidity in our stock exchanges. So there is a lot to play for.”
Chafic Jabbour is senior executive officer
– head of Mena, Candriam
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