An overwhelming majority of UAE investors showed an interest in environmental, social, and corporate governance (ESG) in 2020, according to the CFA Institute.

According to a survey conducted by the organization, 74 percent of UAE investors with a values objective are willing to give up some return in exchange for meeting their investment goals, and 94 percent of retail investors in the UAE are interested in or are using ESG in 2020, up from 90 percent in 2018.

CFA institute is a global organization for investment professionals. The results of the survey were published in a report titled “The Future of Sustainability in Investment Management: From Ideas to Reality,” which explores the influences driving the sustainability movement and charts the implications for investment firms.

“As the Middle East’s second-largest economy, the UAE has shown an increasing appetite towards sustainable investment opportunities, as part of the country’s long-term vision,” said William Tohme, CFA, Senior Regional Head – MENA at CFA Institute.

“Amid market disruptions due to COVID-19, retail investors in the UAE are most focused on improved returns in all markets. Also, when surveying female investors, women were more likely than men to prefer higher returns (76% versus 67%) to risk mitigation (24% versus 33%), in contrast to the commonly held perception that women are more risk averse as investors,” he added.

The research report included perspectives from over 7,000 industry participants, including investment clients, investment practitioners, ESG specialists, and more. It focuses on four key areas of sustainable investing:

Importance of the rise of alternative data in sustainability analysis 

Seventy One percent of roundtable participants believed that the rise of alternative data will make sustainability analysis more robust, while 62 percent agreed that sustainability is an area where human judgement and active management will thrive, highlighting the often subjective and contextual nature of sustainability data.  

Demand for sustainable investing expertise

There is a relative scarcity of sustainability talent in the investment industry. According to the report, CFA Institute used LinkedIn Talent Insights and found that the supply of expertise among core investment roles is limited but growing quickly. Of the 1 million LinkedIn investment professional profiles examined, less than 8,000 list ESG as an area of expertise. However, CFA Institute found that this figure has increased 26 percent in the last year.

Push to change investment models, expand product offerings

Future growth opportunities in the product space include ESG index tracking and quant funds, ESG thematic products, ESG multi-asset products, climate transition strategies, long-term engagement, and better benchmarks, the report said.  

Relevance of systems thinking in sustainability analysis

The COVID-19 pandemic has emphasized the urgency of sustainability issues, highlighted the interconnectedness of the financial system, and how corporate value creation both affects, and is affected by, the ecosystem in which it operates.

According to the report, the integration of sustainability issues will require a more widespread application of system-level thinking.

“The demand for sustainable investing continues unabated, driven by push and pull factors, catalyzed by societal expectations, and accelerated by the COVID-19 pandemic.” said Rhodri Preece, CFA, Senior Head of Industry Research for CFA Institute.

“Investment firms that incorporate sustainability into their business models need access to specialist knowledge to enrich their investment capabilities and to bridge the data gaps. Education and training in the ESG space, along with the rise of alternative data sources and enhanced disclosure frameworks, will equip firms to deliver on the potential of sustainable investing,” he added.

(Writing by Seban Scaria; editing by Daniel Luiz)

(seban.scaria@refinitiv.com)

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© ZAWYA 2020