- General Sustainability
- Understanding ESG
- Green Banking
- Supply chain
Sustainable Financing and Investing survey – MENAT Report
Values, stakeholders and return catalyse change.
Sustainable finance and investment in the Middle East, North Africa and Turkey (MENAT) continues to grow and develop, influenced by an ever changing combination of forces that are driving change among issuers and investors.
Two of the most powerful driving forces this year for why issuers and investors care about environmental and social issues is a firming in their belief that it is right to care about the world and society (42%), together with increasing regulatory demands for them to pay greater attention (42%). MENAT is the only region where these two forces are given as the top two, but they are also prominent across regions, and especially the values-based belief that it is right to care, which is the leading reason given by issuers and investors globally. In breaking the responses down, some interesting differences in opinion between issuers and investors in the region, are apparent. For instance, rising pressure from employees (46%) and customers (40%) to care about these issues, together with regulatory demands (45%), are the three main reasons influencing issuers’ engagement and commitment to these areas.
For investors, regulatory demands (36%) and their belief it is right to care (51%) are primarily underpinning why these issues are important, together with a recognition that paying attention to these issues can improve returns and reduce risk (42%).
What is particularly interesting is the movement in some of these responses from last year, and especially among issuers.
For instance, the influence of employees and customers has risen markedly on last year, when less than a quarter of issuers recognised the influence of these stakeholder groups. Such a rise not only highlights the increasing importance of these issues to crucial stakeholders, but just as importantly the responsiveness of companies in the region and elsewhere to them.
Different institutions will be impacted differently by these forces. However, more generally, the differences between issuers and investors in MENAT this year is something of a theme.
For instance, not only do 48% of issuers consider environmental and social issues as very important – compared to 27% of investors – some 97% of them have increased the attention they pay to these issues in the past year, whereas notably fewer but still high 69% of investors have done the same.
In addition, while 6% of issuers have already made net zero commitments and 78% say they are working towards setting a target, some 6% of investors have already done so but only 12% say they are working towards it – the lowest percentage of any region. Responsible or environmental, social and governance-focused investing has been developing in MENAT during the past few years, as our annual surveys have shown.
Yet this year, the responses from investors highlight some key challenges to ESG investing’s growth and development. Positively, about a fifth of investors in the region say they have a firm-wide policy on responsible investing or ESG issues and 36% say they do not but do intend developing one.
The percentages are low against the global average, but they do show firm commitment and engagement from investors.
This is particularly the case in Saudi Arabia and the UAE where 22% of investors say they have a policy in place, which is higher than the regional average.
Investors in the region are experiencing some challenges, which may be slowing their embrace; some 61% of investors – a global high although this percentage has fallen consecutively in the past three years – say certain issues are holding them back from pursuing ESG investing more fully and broadly. Top among those issues this year is a shortage of expertise and qualified staff.
In fact, of those investors who are being held back from ESG investing, some 43% of them say this shortage is the main reason why, which is the highest percentage globally.
Other challenges include regulatory or legal constraints (28% - down from 36% last year), poor quality or availability of ESG data (28% - flat to last year), lack of demand among clients (27% - down from 44%), and a lack of comparability of ESG data across issuers (27% - down from 55%).
What this shows is that while some key challenges to ESG investing in MENAT remain, many are being addressed and becoming progressively less of an issue. The region’s investors may feel as if they are currently losing the ESG talent battle. They haven’t, however, lost the war.
2021 key findings:
Reasons to care – Three clear factors underpin why MENAT issuers care about environmental and social issues: Pressure from employees (46% - up from 3% in 2020); regulatory requirement (45%); pressure from customers (40% - up from 2% in 2020).
Strategic importance – MENAT issuers show greater commitment to environmental and social issues than investors; some 48% (up from 33% last year) say these issues are very important to their organisation compared to 26% (down from 34%) of their buyside peers.
Reasons to care – Three clear factors underpin why investors care about these issues: Belief that it is right to care about the world and society (51%); recognition that paying attention to these issues can improve returns or reduce risk (42%); regulatory requirement (36%).
Climate change impact – some 45% of issuers say climate change is already affecting their business or activities, up from 7% in 2020.
Net zero opportunity – 6% of MENAT issuers and investors have already made carbon neutral or ‘net zero’ commitments – the lowest percentages globally.
ESG investing – Some 19% of MENAT investors say they have a firm-wide policy on responsible investing or ESG issues and 31% say they have no intention of doing this, which is the highest percentage of any region.
ESG skills gap – Of those MENAT investors who say they are being held back from pursuing ESG investing more fully and broadly, most (44% - up from 26% last year)) say the main reason is a shortage of expertise or qualified staff, the highest percentage globally.
Issuers examined – 47% of MENAT investors say the information disclosed by companies on their environmental performance is inadequate – the second highest percentage globally. Some 32% say it is adequate, and 21% excellent.
Issuers examined – 42% of MENAT investors say the information disclosed by companies on their social performance is inadequate – the joint highest percentage with Asia globally. Some 34% say it is adequate, and 24% excellent.
Green and sustainable finance – Some 63% of MENAT issuers (around the global average) say they expect their company to actively seek advice on green, social or sustainability issues in relation to capital markets transactions in the next 12 months.
COVID shifts, social agendas & more
Global perspectives from issuers and investors in our latest HSBC’s 2021 Sustainable Financing and Investing Survey.