Seven out of 10 sovereign wealth funds in the Middle East have an environmental, social and governance (ESG) policy, up from 30 percent in 2017, Invesco said in a recent report.
Governments in the region are building a framework to drive sustainability through setting up national sustainability goals, revamping water security programs, launching diversity initiatives, introducing ESG financial disclosure standards, publishing ESG guidelines for exchange listing and more, it added.
Sovereign wealth funds are driving attention to core themes such as the climate-focused “One Planet” initiative, which includes four of six founding members from the Middle East.
According to Invesco, sovereign wealth funds globally believe that ESG can be integrated into most asset classes.
While equities have been the initial starting point for ESG implementation, the report found that the sovereign wealth funds in the Middle East, which incorporate ESG at the asset class level, are now fully applying ESG considerations into their alternative asset portfolios including real estate, infrastructure and private equity.
However, there are numerous challenges that need to be addressed with 57 percent of Middle East sovereigns citing quality data and ratings as the main challenge in incorporating ESG. Monitoring is also seen as another challenge, reflecting the limited resources and nascent reporting infrastructure, the report pointed out.
"Over the past two years we have seen an uptick among sovereign investors towards adopting and integrating ESG factors into their overall investment policies. While the growing focus on ESG is a positive development in the Middle East, investors are still in the early stages of adoption,” said Josette Rizk, client director, institutional sales, Middle East and Africa, Invesco.
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