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Sustainable investment in Lebanon ranked last in MENA

01 February 2011

BEIRUT: Lebanon ranked the last country in the Middle East and North Africa in terms of volume of sustainable investments, according to the International Finance Corporation , the private arm of the World Bank.

The IFC estimated the volume of sustainable investments in Lebanon at $125 million, accounting for 0.2 percent of overall SI in the Middle East and North Africa region.

It said that when excluding the amount of Shariah-compliant investment, SI in Lebanon would reach $25 million, equivalent of 0.15 percent of the region’s SI ex-Shariah investment, as reported by Lebanon This Week, the economic publication of the Byblos Bank Group.

The IFC defines sustainable investment as investment techniques that integrate environmental, social and governance value drivers into financial research and investment processes.

Also, the IFC ranked Lebanon in last place in the MENA region on its Market Preparedness Index, which evaluates market readiness for SI in 11 Arab countries.

The index rates the SI readiness of each country on a scale of 0 to 100, with 100 percent being the most ready market. Lebanon received a score of 35 percent, significantly below the Arab average of 41.3 percent. The assessment of market preparedness covers two main components that are investment, ESG regulations and country performance, and ESG disclosure.

The first component carries a weight of 66.7 percent and the second sub-index has a 33.3 percent weight in the index. The IFC said Lebanon, like other Levant countries, is still at an early developmental stage for SI readiness and practices.

Lebanon tied with Morocco in last place in the MENA region on the Investment, ESG Regulations and Country Performance Sub-Index. Lebanon came in last place with a score of 46 percent on the Investment Laws and Regulation category.

The survey said the impact of investment regulations on SI depends on the ease of investment, clear regulatory frameworks, type of investment incentives provided, level of foreign investment and level of domestic investment, among others. Also, Lebanon ranked in last place regionally on the Corporate Governance laws and Regulations and Performance category.

It came in 10th place ahead of Morocco on the corporate governance laws and regulations segment and in last place in terms of corporate governance performance.

It received a weighted score of 49 percent on the overall category compared to a regional average of 61 percent. The survey said sound corporate governance regulations and practices can have a significant impact on investment flows by building confidence and building a stronger reputation for investors.

It noted that this could lead to increased access to capital and lower cost of equity. Further, Lebanon ranked in 6th place on the Environmental Regulations and Performance category, ahead of Saudi Arabia, Bahrain, Morocco, Kuwait and Egypt.

It received a weighted score of 55 percent compared to a regional average of 57 percent. The IFC said regulations that aim to protect the local environment and that are strictly enforced represent strong drivers to accelerate SI, with the potential to influence corporate behavior towards sustainability practices.

Finally, Lebanon ranked in third place on the Social Regulations and Performance category, tying with Bahrain and Qatar. It received a score of 57 percent relative to the regional average of 61 percent. The survey said social development of a country and the process of safeguarding citizens’ rights are the building blocks for fostering socially responsible investment.

In parallel, Lebanon tied with Bahrain, Kuwait and Qatar in last place on the ESG Disclosure Sub-Index, which reflects the level of corporate ESG reporting by companies, and commitments to international voluntary arrangements by asset managers.

The IFC said disclosure of ESG performance is essential to SI activity, as it is the primary source of ESG data. It noted that companies that are transparent are more likely to be valued by SI investors as well as by general investors and stakeholders. – The Daily Star

© Copyright The Daily Star 2011.