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About 85 per cent of high-net-worth investors in the Middle East intend to increase their exposure to ESG (environment, social and governance) and sustainable investments in the future, according to a survey by Geneva-based wealth and asset manager Lombard Odier.
Eighty-one per cent of regional HNW investors said they already take sustainability and ESG into account when making investment decisions, according to the survey, which polled 300 HNW investors and business owners from the UAE, Saudi Arabia, Kuwait and Oman, among others.
“There has been a surge in interest in this type of investment after reading about climate change in the media and social networks,” Arnaud Leclercq, partner holding privé and head of new markets at Lombard Odier, said.
“Earlier, ESG was a good-to-have. Now, it has become more of a must and there is more demand for this type of investment from our international clients and the younger generation.”
However, demand for ESG and sustainable investment spans across generations in the Middle East because of the stronger religious and ethical principles among investors in the region, Mr Leclercq said.
Investment flows to ESG funds fell to $75 billion in the first quarter of this year amid a sharp decline in global risk appetite, rising inflationary fears and higher borrowing costs, according to Institute of International Finance research.
This was the lowest level compared with the previous seven consecutive quarters. Inflows to ESG funds in March were $15bn, their weakest since March 2020, the IIF said in April.
In the year to November 30, 2021, a record $649bn was poured into ESG-focused funds worldwide, up from the $542bn in 2020 and $285bn in 2019, Refinitiv Lipper Research found. ESG funds now account for 10 per cent of fund assets worldwide.
About 72 per cent of investors in the Middle East believe they can generate improved returns through ESG investments, according to Lombard Odier.
Green energy sources — in pictures
Sustainable investments account for 33 per cent of investment portfolios in the region. Investors expect this to increase to 52 per cent in the next five years, the survey found.
“Sustainable investing goes beyond ESG, which focuses more on governance,” Mr Leclercq said.
“You could have a company that is doing well in terms of ESG, but still be a big polluter. Companies have learnt to please investors and the market.”
Respondents cited a need for more clarity and advice from specialists on how to invest sustainably, with 78 per cent stating a desire to receive regular research on sustainable investment ideas and 77 per cent saying they want more information on portfolio sustainability benchmarking, the research found.
Just 29 per cent of respondents said they were “very satisfied” with the service they receive from their banking partner, while 58 per cent are “quite satisfied”, Lombard Odier revealed.
An overwhelming majority of HNW investors in the Middle East also want to reflect their values in their investments. They have already taken steps to integrate their Islamic beliefs through Sharia-compliant strategies and plan to increase those allocations, according to the survey.
About 67 per cent of HNW investors in the Middle East said observing Islamic investment principles is important to them. Sukuks and Islamic loans are the two most favoured Sharia-compliant asset classes in the region, the research found.
Private equity follows close behind, with 30 per cent of investors reporting an interest in private equity that complies with Islamic finance principles.
Sharia investing is also important to younger investors, with 54 per cent aged from 18 to 40 investing in accordance with these principles.
This is demonstrated by the larger Sharia-compliant asset allocation among younger people, who allocate on average 52 per cent to Sharia investments, compared with 48 per cent for those aged 40 and above, Lombard Odier found.
This asset allocation is expected to increase to 60 per cent in the next five years for younger investors, compared with 56 per cent for older investors, the findings showed.
Other simple ideas for sushi rice dishes
Cheat’s nigiri
This is easier to make than sushi rolls. With damp hands, form the cooled rice into small tablet shapes. Place slices of fresh, raw salmon, mackerel or trout (or smoked salmon) lightly touched with wasabi, then press, wasabi side-down, onto the rice. Serve with soy sauce and pickled ginger.
Easy omurice
This fusion dish combines Asian fried rice with a western omelette. To make, fry cooked and cooled sushi rice with chopped vegetables such as carrot and onion and lashings of sweet-tangy ketchup, then wrap in a soft egg omelette.
Deconstructed sushi salad platter
This makes a great, fuss-free sharing meal. Arrange sushi rice on a platter or board, then fill the space with all your favourite sushi ingredients (edamame beans, cooked prawns or tuna, tempura veggies, pickled ginger and chilli tofu), with a dressing or dipping sauce on the side.
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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.”
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