Middle Eastern investors may have traditionally focused on governance, but they are increasingly turning their attention to the economic and social aspects of responsibly investing. The growth of sustainable investment is undisputed. Assets in ESG and sustainable products have almost doubled between 2016 and 2020, growing to over $40.5 trillion worldwide. Over 75% are institutional assets, with Europe remaining the global leader with 50% of total assets in ESG, while the US and Asia continue to grow. By contrast, the Middle East is commonly seen to be at the early stages in the process, though in reality, this is somewhat of a misconception. The region has a long track-record in contributing to sustainable finance and it has seen sizeable, though uncelebrated, successes.
Middle Eastern investors have historically applied Shariah screens to their portfolios, excluding business activities like alcohol, tobacco, adult entertainment, and gambling. They have also typically engaged actively with investee companies to drive positive change and use capital for good within their local communities. This is evident from world-renowned development finance institutions (DFIs) like the Islamic Development Bank and major economic powerhouses like the Public Investment Fund (PIF) of the Kingdom of Saudi Arabia (KSA). Regional governments have been managing the transition of power and energy, economic development, and now sustainable development. A combination of government initiatives and enablers, coupled with changing investor preferences and business practices, have driven adoption amongst capital allocators. As for government initiatives, Gulf Cooperation Council (GCC) states have long been at the forefront of national development. The UAE, and Dubai in particular, has transformed from a fishing village and port to a global business capital. In the space of just half a century, Dubai witnessed exponential growth in its population (50,000 in 1960 to over 3 million in 2021) and GDP. At a macro level, they are at the forefront of diversifying national wealth away from oil and integrating sustainability regionally from the bottom up, with Saudi Arabia, Kuwait, Bahrain, Qatar, and the UAE partnering with the Sustainable Stock Exchanges Initiative, which encourages stock exchanges to promote responsible investment in sustainable development.