Environmental, Social, and Governance (ESG) refers to a framework against which the sustainability and social responsibility of companies are measured. These standards have gained a lot of traction over time, as climate change and ethical business take precedence.
Several studies have linked companies’ ESG performances to long-term profitability and financial resilience. As a result, more investors in the MENA region are looking at ESG investing as a lucrative asset class for their portfolios.
KEY ESG CONSIDERATIONS FOR MENA REAL ESTATE INVESTORS
Environmental issues concerning the demand for oil, change in temperatures, and disruptions to the region’s water supply, are key factors prompting an increased focus on ESG investing in the MENA region.
Sustainable infrastructure stands out amidst ESG investment opportunities for issuers and investors in the Middle East. Of these, energy technologies (especially renewable energy and low carbon fuels), and water and wastewater management systems are the most popular.
At the same time, the main issue with ESG persists here too — that there is no standardisation. A lack of comparability of ESG data is a major barrier to ESG investing in the region.
Moreover, new ESG investors may also struggle with creating a coherent policy that covers their ESG goals. One of the best ESG investing practices, Brie Williams, Head of Practice Management, State Street Global Advisors, previously said, is “incorporating ESG factors in investment decisions and active ownership asset stewardship.”
EARLY DAYS FOR ESG INVESTING IN MENA REAL ESTATE
A study of CFA Institute members revealed that the number of investors keen on ESG investing has been on the rise. It was estimated that by 2020, 94% of retail investors in the UAE would be interested in ESG investing.
Earlier this year, the UAE launched its first sustainable real estate investment trust (REIT) to enable investing in sustainable real estate. Saudi Arabia’s efforts towards renewables and green infrastructure, such as through its mega-city project NEOM, add more incentive to green real estate investing in the region.
The push for smart cities and buildings, especially in Dubai, Riyadh and Doha, further draw attention to energy efficiency and sustainable building materials, strengthening the case for ESG investing in the real estate sector.
It’s still early days for ESG investing in the MENA region. However, the fact that ESG funds outperformed amidst a global stock market crash during the onset of the pandemic last year serves as a valid proof point of the viability of this asset class – something that MENA real estate investors will want a piece of.
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