Abu Dhabi's ADIA studies how to apply ESG to indexed equity investments - source

Many large public institutional investors are gradually building ESG into their investment strategies

  
General view of Abu Dhabi, United Arab Emirates, January 3, 2019. Image used for illustrative purpose.

General view of Abu Dhabi, United Arab Emirates, January 3, 2019. Image used for illustrative purpose.

REUTERS/ Hamad I Mohammed

LONDON- Abu Dhabi Investment Authority (ADIA), one of the world's largest sovereign wealth funds, is researching how to incorporate environmental, social and governance (ESG) factors in its indexed equity investments, a source familiar with the matter told Reuters.

Many large public institutional investors are gradually building ESG into their investment strategies, with the most progress so far related to climate change.

Equities form the largest chunk of assets in ADIA's portfolio, with the long-term investor using both internal teams and externally-managed funds to invest.

ADIA's has two equities-focused departments: indexed funds that track benchmarks and actively-managed stocks.

ADIA has started a research project to study ESG factors and ways to mitigate ESG-related risks, initially within the context of indexed equities, said the source familiar with the matter.

The move follows a similar approach with climate change, which led to the creation of a climate change portfolio within ADIA's global indexed equities portfolio in early 2020.

The latest project will follow a similar approach for ESG more broadly, the source said.

One of the challenges with ESG investment is the lack of an industry-wide consensus on ESG metrics, which is why ADIA is carrying out its own research, the source said.

ADIA, which manages capital on behalf of the oil rich Abu Dhabi government, does not disclose the value of its assets but financial advisory boutique Global SWF, which specialises in sovereign funds, put them at $710 billion last year.

(Additional reporting by Saeed Azhar in Dubai. Editing by Karin Strohecker and Mark Potter.) ((Tom.Arnold@thomsonreuters.com; +442075428510; Reuters Messaging: tom.arnold.thomsonreuters.com@reuters.net))

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