More than two-thirds (67%) of sovereign wealth funds in the Middle East have an environmental, social and governance policy (ESG), according to a survey conducted by fund manager Invesco.
The figure is more than double the 30% of firms that had an ESG policy in 2017, underlining the growing importance of responsible investing with the region’s sovereigns accelerating their pace of adoption more than any other. It also puts the Mena region above the global average of 60% – up from 46% in 2017.
According to Invesco, there has been a clear evolution among sovereigns in the uptake and sophistication of ESG over the last two years. In 2017, the proponents of ESG were embedding the principles deeper into their investment process while the opponents were still awaiting further evidence of its effectiveness before implementing any ESG measures. ESG is now at the forefront for many, says Invesco.
The report, the Invesco Global Sovereign Asset Management Study, also highlights the role of Mena governments in promoting ESG through national sustainability goals, ESG financial disclosure standards and membership of various global ESG initiatives such as the One Planet project around climate change where four of the six founding members are from the Middle East.
Mena’s SWFs are also embedding ESG within a wider range of funds with 100% of the funds that have incorporated ESG at an asset level also doing so with their alternative investments in private equity, real estate and infrastructure. In contrast most other SWFs are expanding their use of ESG in fixed income assets.
Invesco also highlights some of the challenges facing SWFs in their use of ESG, the main one being the availability of reliable data, as cited by 57% of Mena sovereigns.
"Over the past two years we have seen an uptick among sovereign investors towards adopting and integrating ESG factors into their overall investment policies,” said Josette Rizk, client director, institutional sales, Invesco Middle East and Africa.
“Our latest study reveals that investors are broadening their ESG focus to environmental considerations, in response to an increased awareness to climate change and its impact on the environment. While the growing focus on ESG is a positive development in the Middle East, investors are still in the early stages of adoption,” she added.
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