The interest in investment products with features related to ESG (environmental, social and governance) matters has grown exponentially during the past several years.
By the end of last year, the Principles for Responsible Investment, the largest global network of institutional investors committed to environmental, social, and corporate governance (ESG), had signatories representing over $85 trillion in assets under management. Of those signatories, over a hundred are from the Middle East and Africa.
In an interview with Zawya, Gary Baker, Managing Director of Europe, the Middle East, and Africa (EMEA) at the CFA Institute, said that in some ways investors in the Middle East may have a head start in ESG investment.
"Our [report], ‘Sustainable, Responsible, and Impact Investing and Islamic Finance: Similarities and Differences’, finds similar origins and shared aspirations between ESG investing and Islamic finance to address societal issues,” he said. “Investment professionals in any part of the world who bring a fluency in both the principles of Islamic Finance and ESG investment analysis will have a unique perspective," he added.
Taking advantage of ESG investing
Investing around the principles of ESG analysis is a relatively nascent field and firms are currently building their capabilities and investment offerings.
CFA Institute research in the Middle East through roundtables with CFA charterholders suggests that around half of firms in the region have an ESG investment specialist on staff.
Markets are tracking at varying pace in their recruitment and training of ESG specialists, and their development of ESG-oriented products.
ESG-focused investing as a category is relatively new and investors should really challenge their advisers to help them make sense of their options. "There are very few asset managers who I talk to today who are not engaged in preparing new product launches: some want to mobilise that ESG story, while others are reacting to a commercial opportunity," Baker said.
Need for better ESG data
ESG scoring and reporting can unlock a huge amount of information on the management and resilience of companies, but will require agreed global data standards and regulations.
“Our Consultation Paper for the development of ESG Disclosure Standards for Investment Products intends to provide the necessary transparency through which investment managers can better communicate the nature and characteristics of ESG-centric funds and investment strategies,” Baker said.
“We very much look forward to feedback from the finance community and to producing a Standard that will help investment professionals better serve and guide their clients,” he added.
(Reporting by Seban Scaria; editing by Daniel Luiz)
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