Why the GCC’s wealthy are seeking sustainable investments

Investors realise that incorporating ethical criteria into investments will lead to better returns and reduced risk

As interest in more ethical and sustainable investment grows, portfolio allocations to impact investing are likely to grow too. Getty

With Cop28 approaching, sustainable investing continues to grow in popularity, not only in the UAE, but also globally.

In recent years, investors across the globe are increasingly looking for investments that are sustainable, with many looking to allocate funds to environmental, social and governance (ESG) issues as part of their portfolios.

But what’s motivating this? A recent survey conducted by Barclays revealed the primary motivation for engaging in impact investing for more than three quarters (77 per cent) of respondents is a sense of responsibility to make the world a better place. And just over a third said they want to demonstrate that family wealth can be invested for positive outcomes.

I believe investors are looking to sustainable investing not just because it is the right thing to do but also from a risk-return point of view.

We’ve seen a growing realisation of the value of sustainable strategies, not as a luxury, but as a fundamental approach to selecting higher quality investments.

Many also believe that incorporating sustainability criteria into their investments will lead to better returns and reduced risk.

Returns certainly do not have to be sacrificed to invest sustainably.

In terms of investment, an area we see a lot of traction and engagement is around the private market space.

Within private markets, we see interest in impact investments, and these are often earlier stage venture capital that are looking at solving a social or environmental challenge. These may be technologies that create an impact or influence the future, and some of this is around climate change.

We’re also seeing a younger generation of investors - millennials - who are now playing an active role in the investment decision-making process.

This talented and well-educated generation is increasingly taking part in the decision-making process within their family offices and the institutions they represent.

I believe the Middle East and North Africa region and the UAE specifically has tremendous talent in terms of building and growing businesses, while the wealth management and private banking industry is becoming more important in the region.

With around 25,000 high-net-worth individuals in Europe, Africa, Asia and the Middle East estimated to transfer $15 trillion to the next generation by 2030, the passing on of wealth is high on the agenda of many wealthy families.

As interest in more ethical, sustainable and impactful investment grows, we can expect portfolio allocations to impact investing to grow, too.

In fact, our research suggests around 40 per cent of private wealth clientele will have 80 per cent to 100 per cent of their portfolios invested sustainably in five years from now.

In the GCC, sustainable investing has become a popular theme, especially as we see regional governments allocating funds towards sustainable investing and driving forth the sustainable agenda.

I’ve been paying close attention to Saudi Arabia’s significant investment in clean energy projects, such as the government’s plans to build a zero-carbon city at Neom, the first major construction project for the $500 billion flagship business zone.

In recent years, we have witnessed an increase in ultra-high-net-worth individuals, family offices and institutions allocating funds and seeking Sharia-compliant investments.

Wealth holders across the world recognise that their capital makes an impact on the world and are looking to invest not only for tomorrow but also to influence it

Rasha Badawi,
chief executive of Barclays Private Bank UAE and head of Mena

There has also been an increased interest in “ethical” investments, not necessarily classified as Sharia-compliant.

Sharia-compliant investing and sustainable investing share a meaningful link. Like sustainable investing, Sharia-compliant investing considers social values and good governance practices.

Such investments rule out businesses that engage in activities deemed “unethical” or “immoral”, according to Islamic principles.

What we are seeing is that the new generation of UHNWIs and family offices in the region view Sharia-compliant investing and ethical investing in a more holistic manner compared with earlier generations.

They do not view it as a separate concept any more. The incredible level of sophistication we have witnessed in this region has led to investors assessing investments for their fundamentals and how they complement their Sharia and their ethical beliefs.

Ultimately, it is clear that wealth holders across the world recognise that their capital makes an impact on the world and are looking to invest not only for tomorrow but also to influence it.

Rasha Badawi is chief executive of Barclays Private Bank UAE