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Money never looked greener until 2020 – Evaluation of ESG and sustainable financing in the Middle East

The expansion of funds and programs with a deliberate emphasis on boosting environmental and economic growth signaled a surprising and drastic change in global finance last year. Huge inflows of cash are seen in “eco funds” and other renewable funding projects, as well as a broader pattern of money, moving into ESG (environmental, social, and governance) investing.

This pattern, like all global financial phenomena, is the product of a complex web of interconnected causes. Industry experts, on the other hand, repeatedly refer to the pandemic as a cause for investors’ attitudes and decision-making processes to change in favor of ESG investing.

The influence of lockdown and its concrete impacts on the environment is said to have spurred a greater emphasis on spending in a way that blends long-term sustainability with success, rather than pursuing profits solely for the sake of profit.

In 2020:

  • The overall value of ESG assets in Europe hit $821 billion.
  • The S&P 500 ESG (the top 500 publicly traded US companies) outperformed the non-ESG equivalent by 1.5 percent.
  • Investors must publicly report their ESG considerations when making acquisitions, according to increasingly stringent rules pushed by global regulators and policymakers. Signatories to the United Nations-backed Principles for Responsible Investment (PRI) must now follow obligatory climate-related financial statements or risk losing their accreditation.
  • The UK’s renewable funding reserves increased by $12.25 billion in 2019, more than quadrupling to $55.55 billion in total.
  • Brown Advisory, a major US fund manager, won $5 billion for its sustainable fund’s investment category.
  • In November, China’s “green bond” market reached a record high of $164.9 billion.

Middle Eastern Financing and its impact

For the Middle East, the rush of money into more productive projects is critical. The recent trend of foreign investment drying up in the area shows that the hydrocarbon rush is over, and the Middle East must shift its focus to improving renewable energy, which is a latent yet emerging power. According to the World Bank, foreign direct investment into the GCC has decreased by 40% in the last ten years. Green financing, on the other hand, is expected to unlock $2 trillion in value by 2030 if the country will build the required infrastructure and supporting conditions.

In the GCC, the solar, wind, and green hydrogen are now approximately 2.5 to 3 times cheaper to make, making them an ideal medium for attracting and supporting green finance. This is in line with individual Middle Eastern states’ broader economic policies to diversify away from hydrocarbon dependence and increase their capacity to export renewable energy infrastructure, skills, technology, and expertise.

However, the region has a long way to go before it can be considered a major player in long-term financing. Although the global green bond market was worth over $230 billion in 2019, the Middle East and North Africa accounted for just $2 billion of that amount. Still, like the rest of the world, the Middle East saw a flurry of reports last year about new renewable bonds, environmental financing projects, and regulatory reforms. In comparison to 2019, regional renewable and sustainable bond issuance increased by nearly 50% in 2020. From Majid Al Futtaim issuing $600 million in 10-year green Islamic bonds to Egypt establishing a Regional Centre for Sustainable Finance, there has been a lot going on in the world of sustainable finance, the arrow is pointing in the direction of long-term funding.

The rising level of reporting on such events is just as relevant as the level of investment in green funds and ESG investing concepts. In 2020, 51% of the UAE’s top 100 businesses will report on their corporate sustainability efforts, up from 44% in 2017. The growing appeal of sustainable funding and ESG-based investment decision-making is leading the region’s biggest and best companies to strengthen their reporting and overall contribution to this rapidly changing field of ME and global finance.

Finance is going Green: a growing sustainable Middle East funding community

Although the Middle East has a lot of catching up to do if it wants to catch up to Europe, the United States, and China, the country still has plenty of advantages to take benefit from. Its culture of fusing environmental and economic resilience with long-term infrastructure growth strategies makes its leading companies and PPP projects steadily sound ESG investment prospects.

Despite the fact, the total numbers for unique sustainability funds in the Middle East are still slim, their steady growth and growing presence in the minds of global investors makes the next few years a very exciting time for green finance in this region. If the move to clean energies accelerates, it seems that alternative funding investment flows will follow suit.

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