In the past, companies were adjudged mainly on their performance regarding their bottom line; the more profits realized, the greater the success. However, in the modern world, firms are additionally rated on the level of regard they have for the environment, social, and governance considerations.
A growing number of the world’s largest institutional investors are placing more capital in firms ready to prosper in a green economy. The trend among sovereign wealth funds and other long-term investors is to protect their portfolios against ESG-related risks.
This shows a trend in investor, consumer, and regulatory pressure on companies to be held responsible for the wider impacts of corporate operations beyond just financial success measured in the short run.
This has made sustainable development a major concern among businesses across the world, more so in countries that have open-minded governments, like UAE. State initiatives and strategic programs encourage further adoption of ESG principles and reporting.
One big step in this regard has been the 2021 directive of the financial regulator of the UAE, requiring listed companies to disclose ESG metrics. This is in conjunction with a group of holistic national plans, such as the UAE Green Agenda 2030, Sustainable Finance Framework, and Net Zero 2050 Strategy.
In response, ESG criteria have emerged prominent among UAE investors. A recent eToro survey revealed that over 84% of UAE retail investors already take ESG factors into consideration when making any investments, with a further 13% intending to start doing imminently.
Nearly half, 47% said they were most interested in environment factors under the umbrella of ESG; this put it above social factors at 31% and governance at 22%.
Over 37% of investors agree that ESG provides insights not captured by traditional financial analysis, and more than 35% believe it has the potential to offer an influence over one’s financial performance.
Globally, ESG is going to surge in growth over the next few years, partly driven by millennial investors who are likely to plunge into sustainable investing across new asset classes and themes.
Morgan Stanley data shows huge potential growth in the Sustainable Investing Market, while an estimate by PwC suggests that global ESG assets may reach over $53 trillion by 2025, underlining colossal investment potential.
The trend shall be naturally followed by UAE investors, driven by ethics through societal impact and risk mitigation.
Over 38% of UAE investors acknowledge the prominence of ESG, and more than 48% find it easy to incorporate into their investment strategies.
Looking ahead, 62% of local investors have shown interest in renewable sectors, including solar, hydro, and wind.
Essentially, all investors expect their investments to yield a long-term return that is not interfered with by environmental risks, low social standards, or weak governance. For the ordinary investor, ESG considers a more intense interpretation of the firms they invest in, thus reducing risk and giving them a chance to find growth.