ESG Investors Can Drive Lasting, Measurable Change

With environmental, social and governance (ESG) investment principles fast becoming the norm for capital market participants, investors now have a historic opportunity to act as direct agents of change in an economy driven by ethically-minded consumers.

Moderating at the 2022 Abu Dhabi Sustainable Finance Forum (ADSFF), Cathrine de Coninck-Lopez, Global Head of ESG, Invesco, said: “The performance of ESG-focused funds is being closely watched by investors and policymakers, particularly given the context of climate change and post-COVID market recalibration. This is why it is so important to get innovative solutions to market that unlock and catalyze ESG financing – because investors are increasingly looking to make a lasting impact through the portfolios they choose.”

Incorporating environmental, social and governance (ESG) factors into investment decisions has seen significant growth in recent years.  Asset managers strive to better understand how companies address ESG issues, and asset owners look for clarity over ESG-related decisions taken on their behalf.  While this has created a proliferation of ESG-assessment tools, Invesco’s experts emphasize that the most important consideration is ESG integration, to ensure a holistic approach to responsible investing.

Coninck-Lopez comments that “ESG principles are the new normal for businesses that wish to seek buy-in from investors, customers, policymakers, the media, and all other stakeholders that their activities impact.ESG considerations are part and parcel of every corporate decision made in today’s board rooms. As ESG becomes more embedded into every single business function, the next step will be for it to meet the same standards as long-standing processes and systems.”

The strength of feeling across the investor community is such that the topic of conversation at ADSFF 2022 is less about whether ESG investing is important but about how to accelerate the development of new ESG products and solutions, how to harness data to understand and measure ESG impact, and how to work with policymakers to help formulate ESG investment regulations.

Major organizations and entities in the Middle East are coming forward with evidence that ESG is already a core consideration. There has been an increased focus on sustainable finance and interest in ESG issues as governments look to diversify away from oil and gas, and set their sights on their respective national economic and sustainability goals. Several regulators in the region have established requirements for disclosure on sustainable activities and reporting. Regional sovereign wealth funds are at the forefront of the conversation, with the Abu Dhabi Investment Authority (ADIA), Kuwait Investment Authority (KIA), Qatar Investment Authority (QIA) and Saudi Arabia’s Public Investment Fund (PIF) among the founding members of ‘One Planet Sovereign Wealth Funds’.

Zainab Kufaishi, Head of Invesco Middle East and Africa said, “Investors in the region are serious about sustainable finance, and so too are policymakers who understand the correlation between ESG investments, ESG corporate activity, and resilient, sustainable economic development. Capital market participants are at the forefront of influencing change, making the buy and sell decisions with the entities in which to invest. Approaches to ESG investing must therefore be diverse and flexible and innovative.”

Research detailed in the Invesco Outlook for ESG in 2022 points out that there is a need to address the outcomes of engagement for investors who choose ESG portfolios. Improving the tracking of outcomes in the real world is an opportunity to ensure corporate accountability while scaling influence. Invesco is a strong proponent of active ownership, an ESG advocate and member of several initiatives.  Invesco also developed a proprietary ESG rating tool that provides a holistic view on how a company’s value chain is impacted by various ESG topics.

Kufaishi adds, “Greater convergence in reporting could fill gaps in core metrics that investors rely on to develop their screening tools and assessment methodologies.  Convergence in ESG reporting standards would also enable such data to be audited, which is becoming increasingly important to investors that base capital allocation decisions on such information.”

Invesco is a signatory of the Abu Dhabi Sustainable Finance Declaration, underscoring its commitment to championing sustainable practices in financial services in the UAE economy, and also a signatory of the One Planet Asset Manager Initiative and the Net Zero Asset Managers Initiative.