ESG forms the core of UAE's sovereign funds' investment strategy

Adia is betting that technology advancements and climate change lead to new, sustainable investment opportunities

ABU DHABI -MAR 3. Abu Dhabi Investment Authority (ADIA) for archive. (photo by Stephen Lock / The Nation) *** Local Caption *** SL-investment-001.jpg

Environmental, social and governance standards are at the heart of investment strategies of sovereign wealth funds in the UAE as they look to deploy tens of billions of dollars at home, across the broader Middle East and North Africa region and elsewhere in the world.

“Like all investors, we are convinced that sustainability is extremely important, which is becoming even more important in the future,” Jean-Paul Villain, the director of Adia's strategy and planning department said on Wednesday.

“When we look at ESG … to spell out that G [governance], is something which portfolio managers have always done … it is something which is part of our activities and our approach,” he told an online panel during the Abu Dhabi Sustainable Finance Forum.

Abu Dhabi's sovereign fund, which does not disclose the size of its assets, invests on behalf of the Abu Dhabi government and is the third-biggest sovereign fund – after Norway and China – according to the Sovereign Wealth Fund Institute.

Adia holds various types of assets including equities, fixed income, real estate and private equity, but has always been “conscious” about governance risks when investing in companies, Mr Villain said.

The fund is betting on technology advancements and climate change to lead to new and sustainable investment opportunities, it said in its 2019 annual report released last month.

Adia has already invested in two renewable companies in India and is building its real estate portfolio in line with environmental policies, Mr Villain said.

Mr Villain was speaking on the panel debate during the Abu Dhabi Sustainable Finance Forum on Wednesday alongside David Crofts, executive director of enterprise risk management and responsible investment at Mubadala Investment Company; Vasilios Siokis, chief risk officer at Emirates Investment Authority and Jamie Levy, general counsel at Abu Dhabi Investment Office.

Both Adia and Mubadala, Abu Dhabi’s strategic investment arm with assets of $232 billion, are part of the One Planet Sovereign Wealth Funds initiative – an international coalition of SWFs that look to integrate climate change considerations into investment decision and support global climate action.

“As a long term global investor, we believe it is critical to consider all risks when making investment decisions and when managing existing assets. ESG is increasingly material to the performance of our investment both in terms of downside risk and opportunities,” Mr Crofts said.

“Mubadala is actively working to imbed ESG consideration into both portfolio strategies … and each stage of the investment lifecycle.”

Mubadala has a portfolio of investments that spans six continents and includes Masdar, the UAE-based green energy developer.

Masdar, with its headquarters in Abu Dhabi, has active investments in more than 30 countries and has so far deployed $19.9bn in renewable projects including wind and solar developments.

The panel also discussed challenges faced by global investors in terms of assessing sustainable investments.

“The majority of global investors have some kind of ESG or sustainability policy or guidelines,” Mr Siokis of EIA said. “But there are obviously a number of challenges when it comes to the monitoring of these guidelines,” he said.

It is difficult to guide companies in terms of how to disclose sustainability-related information, he added.

“It is a very challenging terrain and the way investors can tackle this is obviously going through a very in-depth due diligence during their investment decision process.”

Mr Levy of Adio – a government body that oversees Abu Dhabi’s public-private partnerships for infrastructure development and a platform that promotes investments into the emirate – is looking at ways to demonstrate "an ESG dividend to the economy in Abu Dhabi" and its people.

“In respect of ESG we look at the PPP programme and we look at what long-term infrastructure means in respect to ESG,” he said.