The world has gone environmental, social and governance (ESG) mad. The investment strategy has become a key part of retail clients plans since the pandemic.
More investors are thinking about where their money goes and the outcome of their investments.
According to global wealth manager Lombard Odier, 81% of Middle East investors already keep ESG issues in mind when looking at investments, with 85% looking to increase their exposure to ESG in the future.
The Middle East advice market has already cottoned on to the potential of ESG.
According to behavioural finance experts Oxford Risk, 75% of Middle East and North Africa (Mena) financial advisers and wealth managers believe access to more ESG products will help them expand the most over the next three years.
International Adviser has spoken with several UAE-based wealth and advice firms to discuss the impact of ESG in the region and whether it has a future in the industry.
Pivot towards ESG
Chris Ball, managing partner of Hoxton Capital Management, said: “Financial institutions in the Gulf Cooperation Council (GCC) are experiencing growing pressure from regulators, employees, investors, and customers to increase their ESG activity. We, as a company, are seeing an increasing number of clients requesting that part of their portfolio has exposure to ESG funds, we even have a few clients request that their entire portfolios be invested in line with current ESG standards.
“We have responded to this demand by creating ESG model portfolios for their desired risk level which have proven to be very popular. This is clearly a changing market that is gaining momentum and we must ensure our clients can take advantage of this.”
Sean Kelleher, chief executive of Mondial Dubai, added: “From an investment perspective, the Middle East is not detached from the world as it follows best practices and the best fund managers, many of whom have offices in the UAE, have already embedded ESG into their practices and philosophy.”
Supply
The market may be moving towards ESG, but are there enough products in the region for retail investors to keep up with the rising demand?
Paddy O’Brien, head of investments at Globaleye, said: “There has been an increasing trend in both the range and sophistication of investments available to investors. Research shows that ESG-mandated assets will account for over half of all professionally managed assets globally by 2024.
“Where once only broad ESG investments were available, investors can now tailor their portfolio to focus on one country, sub-industry or a specific United Nations Sustainable Development Goal.”
Hannah Greenwood, managing director of Finsbury Associates, added: “There are now lots of different ESG options available in the market for our clients to choose from and our team are able to help clients choose the most suitable investment product for their needs.”
Future
Currently, in the UK, the advice sector is starting to make ESG the default in terms of investment options and strategies.
The UAE market may be a little bit behind – but it seems like it is on the same path in the long run.
Globaleye’s O’Brien said: “ESG will play an integral part of financial advice in the UAE in the coming years. The global move towards increased ESG regulation will allow investors to make more informed decisions.
“Studies have shown that most people prefer to work or support companies that care about the same issues that they do, and the wealth management industry is not immune to this trend. Firms that are not progressive enough to align themselves with their evolving clients will be left behind.”
Finsbury Associates’ Greenwood added: “For me, ESG will just become part of mainstream investing in the future. It won’t be a separate portfolio which you will have to consciously invest in as I believe the principles of ESG will be fully integrated into every investment we make.”
