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.