In the past five years, the world’s sustainable finance markets have expanded from niche products a decade ago, to more than one and half trillion dollars of bonds and loans issued last year.
Investors have also allocated hundreds of billions of dollars to ESG-focused equity and debt exchange-traded funds. Sustainable finance is a growth market — or at least, it was until this year.
Through November of this year, sustainable debt issuance is just under $1.2 trillion. At the same time last year, companies had raised more than $1.5 trillion. The difference between this year and last is probably impossible to make up in December, which is traditionally a quiet month for issuance.
The pullback in sustainable debt issuance — across three types of bonds and two types of loans — has been universal. Every instrument has seen less issuance this year than last.
Sustainability-linked loans have done best, relatively speaking, with issuance down 11.8 per cent from a year ago. Social bonds, on the other hand, are at only about half the level of issuance as last year.
BloombergNEF analysis finds that the decline in social bonds is mostly due to their circumstantial nature — they are closely linked to issuer efforts to mitigate the impact of the coronavirus pandemic.
he two biggest categories in terms of total dollars issued, green bonds and sustainability-linked loans, are both off more than 20 per cent.
It is not just sustainable debt that is off last year’s marks. Exchange-traded funds with an environmental, social, and governance theme saw more than $130 billion dollars in capital flow in 2021, an increase of five times more than the inflows of just two years earlier.
This year, new investments may be less than $50 billion — not only well below 2021 but even below 2020.
Monthly inflows into ESG funds are down in 2022, compared with the previous two years. Inflows increased for six straight months at the end of 2020, to peak above $20 billion in January 2021. That figure is nearly half of 2022’s total inflows to date.
Also, fund inflows have fallen below $1 billion a month twice this year, a level not seen since the start of 2019.
Within that same month Elon Musk described ESG as a “scam” that “had been weaponised by phoney social justice warriors.” It was also a time, perhaps not coincidentally, when Google Trends showed peak interest in the term. As of December 12, Google searches for “ESG” is about equal to what it was in May.
The data doesn’t determine a path for the future. But, these are some possibilities. The first is that a continued effort to stigmatise ESG, in particular from US activist investors and politicians targeting large asset managers, leads to outright outflows in ESG-focused exchange-traded funds.
Not even the world’s biggest asset manager is immune at the moment, and its near-peer is leaving a significant global climate finance alliance. Others could follow suit under political and rhetorical pressure.
In Europe, efforts to quantify ESG and sustainable investing standards could alter fund allocation strategy in a major way as well. That “chill of realism,” as one London-based attorney described it, could impact about $4 trillion in assets and dampen investor enthusiasm for further allocation.
Sustainable debt markets could feel a little frostier thanks in large part to the disappearance of the “greenium” — or discount to conventional notes — that green bonds have enjoyed. Green bonds now issue at a premium to conventional notes, which makes them less attractive to issuers.
But at the same time, the next three decades will require between $120 trillion and $194 trillion of investment as the global energy system decarbonises. Many trillions of dollars’ worth of that demand will flow through sustainable debt markets.
Today’s market has good reasons for its chilly conditions. The long run, however, has many reasons for expansion.
HAJJAN
%3Cp%3EDirector%3A%20Abu%20Bakr%20Shawky%C2%A0%3C%2Fp%3E%0A%3Cp%3E%3Cbr%3EStarring%3A%20Omar%20Alatawi%2C%20Tulin%20Essam%2C%20Ibrahim%20Al-Hasawi%C2%A0%3C%2Fp%3E%0A%3Cp%3E%3Cbr%3ERating%3A%204%2F5%3C%2Fp%3E%0A
The specs
Engine: 3.9-litre twin-turbo V8
Transmission: seven-speed
Power: 620bhp
Torque: 760Nm
Price: Dh898,000
On sale: now
Libya's Gold
UN Panel of Experts found regime secretly sold a fifth of the country's gold reserves.
The panel’s 2017 report followed a trail to West Africa where large sums of cash and gold were hidden by Abdullah Al Senussi, Qaddafi’s former intelligence chief, in 2011.
Cases filled with cash that was said to amount to $560m in 100 dollar notes, that was kept by a group of Libyans in Ouagadougou, Burkina Faso.
A second stash was said to have been held in Accra, Ghana, inside boxes at the local offices of an international human rights organisation based in France.
How much do leading UAE’s UK curriculum schools charge for Year 6?
- Nord Anglia International School (Dubai) – Dh85,032
- Kings School Al Barsha (Dubai) – Dh71,905
- Brighton College Abu Dhabi - Dh68,560
- Jumeirah English Speaking School (Dubai) – Dh59,728
- Gems Wellington International School – Dubai Branch – Dh58,488
- The British School Al Khubairat (Abu Dhabi) - Dh54,170
- Dubai English Speaking School – Dh51,269
*Annual tuition fees covering the 2024/2025 academic year
Who's who in Yemen conflict
Houthis: Iran-backed rebels who occupy Sanaa and run unrecognised government
Yemeni government: Exiled government in Aden led by eight-member Presidential Leadership Council
Southern Transitional Council: Faction in Yemeni government that seeks autonomy for the south
Habrish 'rebels': Tribal-backed forces feuding with STC over control of oil in government territory
SPEC SHEET
Display: 10.4-inch IPS LCD, 400 nits, toughened glass
CPU: Unisoc T610; Mali G52 GPU
Memory: 4GB
Storage: 64GB, up to 512GB microSD
Camera: 8MP rear, 5MP front
Connectivity: Wi-Fi, Bluetooth 5.0, USB-C, 3.5mm audio
Battery: 8200mAh, up to 10 hours video
Platform: Android 11
Audio: Stereo speakers, 2 mics
Durability: IP52
Biometrics: Face unlock
Price: Dh849
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
