The UAE is leading the way with ethical investing, second only to China.
According to researchers from UBS, 60% of Chinese and 53% of UAE investors have exposure to ethical funds, the highest of the 10 countries surveyed.
The vast majority (93%) of UAE investors believe they are not giving up performance by choosing a sustainable investment (global average: 82%).
Further, 66% of UAE investors expect sustainable investments to outperform traditional investments (compared with 50% of investors surveyed globally).
UAE investors expect sustainable investing to grow from 53% of investors to 66% over the next five years (globally: 39% to 48%). Three quarters of investors (75%) expect it to become the norm in a decade, well above the global average of 58%.
Echoing recent research from Schroders’, analysts said the barriers to sustainable investment are clear: 72% of UAE investors not allocated to sustainable investments believe it’s hard to know what impact sustainable investments have, and 56% consider high fees to be a barrier to investing sustainably (global averages 63% and 46%).
Positive outlook leads to ethical investing
“The UAE has a very forward thinking vision,” said Dubai based adviser Sam Instone, chief executive of AES International.
“Residents are inculcated with this positivism and tend to want to be at the forefront of technology, sustainability, philanthropy and most other fields of endeavour.
“It isn’t surprising to see those countries who are highly positive about the future reflect this in their investor behaviour.”
Rachel Whittaker, sustainable investing strategist, chief investment officer of UBS Global Wealth Management, added: “It is encouraging to see how many investors in the Middle East translate their personal convictions, particularly when it comes to protecting the environment, into sustainable investments.
“We now need to address the concerns of those who remain sceptical, and demonstrating that investing sustainably can deliver market rate investment returns will be an important step in that direction.”
Why are UK investors so unethical?
The UK’s lack of interest in ethical investing is being blamed on confusion over sustainable investing terms and scepticism about its ability to deliver returns as new research shows the country lags most countries when it comes to applying values to their portfolios.
Only 20% of UK investors hold sustainable investments in their portfolio, half the global average, according to UBS research.
The US was the only country that lagged the UK with an average 12% allocation.
Return expectations for sustainable investing
There is a clear correlation between return expectations and engagement, which could be behind the results, says Hortense Bioy, director of passive funds and sustainability research at Morningstar.
The UK and US were the most sceptical about sustainable strategies ability to deliver returns, according to the report.
“A lot of investors in the UK and US still believe that sustainable investing is only about excluding certain sectors and stocks like tobacco, alcohol, and oil & gas companies,” Bioy says.
Millennials and wealthy provide hope
The younger generation provides some hope for the sustainable investing sector.
Those under 35 years of age allocate four times as much to sustainable investments as over 65s, UBS found.
Additionally, the proportion of UK high net worth investors (HNWI) holding sustainable investments has increased by a third from five years ago.
UBS predicts this will increase a further 15% by 2023 and half of Britain’s wealthy investors will eventually consider making most or all of their portfolio sustainable in the future.
“It is disappointing to see the UK lagging behind other markets in the pursuit of sustainable investments,” said Nick Tucker, head of UK domestic at UBS Global Wealth Management.
“However, the growing momentum among UK investors considering this investment route is undeniable. We are increasingly having conversations with clients, across generations, about how they can best build sustainable investing into their portfolios.”
