21 FEB 2021

A recent rise in valuations of ESG-compliant corporations is testament to the growing focus of investors on ethical standards

Long considered a fringe or niche discipline, sustainable finance has finally established a strong foothold in the world of investing. A range of market forces, accelerated by the Covid-19 pandemic, combined with increasingly discerning retail and institutional investors, has resulted in the rapid growth of the sustainable finance industry, which until recently was considered to be in its relative infancy.

A new breed of socially and environmentally aware investors have encouraged banks, large investment companies, and by extension corporations, to re-examine their frameworks around Environmental, Social and Corporate Governance (ESG) standards in order to be viewed as responsible corporate citizens and viable brands.
But what exactly is sustainable financing? Put simply, sustainable financing or investing is the practice of financing or investing in companies or projects that have a positive environmental or social impact. These may include companies initiating projects in renewable energy, social initiatives or new, low-carbon technologies. It offers a prudent and ethical code of conduct while investing in or financing projects and corporations.

As our collective conscience increasingly gravitates towards sustainable and ethical practices, ESG, also referred to as impact or sustainable investing, is primed to become key to long-term value creation and returns on assets for investors.

A recent rise in valuations of ESG-compliant corporations is testament to the growing focus of investors on entities that are viewed as upholding higher ethical standards.
For example, a recent report by the International Energy Agency and Imperial College Business School found portfolios of listed renewable energy companies outperformed traditional hydrocarbon stocks over the past decade. 

A study conducted by the Ministry of Economy, Majid Al Futtaim Holding, and Abu Dhabi Global Market (ADGM) shows that ESG factors are being significantly scrutinised by major corporations around the world.

The study found that 75 per cent of retail and institutional investors applied ESG principles to at least a quarter of their portfolios in 2019, a considerable increase from 48 per cent in 2017. Globally, banks have been funding a higher number of sustainability-linked projects – rising to $71.3 billion in the first three quarters of 2019.

Other research from HSBC shows that climate-aligned and ESG-compliant public companies have outperformed global benchmarks over the long term.

Channelling ESG returns into macroeconomic growth has also been a concerted effort, one that international financial centres have been seen championing. The likes of Hong Kong, Singapore and Abu Dhabi, widely regarded as preferred destinations for international investment, are scaling their regulatory frameworks and introducing sustainability-focused initiatives and offerings that advocate for the increased integration of ESG practices in the public and private sector. A prime example of these efforts is found in the formation of the UN Financial Centres for Sustainability (FC4S), a 30-member network of international financial centres that work alongside one another to achieve the objectives of the Paris Agreement and the United Nations’ Sustainable Development Goals.

Regionally, the UAE is focused on instilling a knowledge-based economy and is making a concerted push to promote ESG as an investment strategy and as best practice for companies here, even as it remains a largely hydrocarbon-driven economy.

ADGM, the international financial centre located in the capital of the UAE, has championed ESG practices over several years, with an aim of developing a vibrant ecosystem and thriving sustainable financial hub that supports capital formation, including raising, deployment, creation and issuance of products to achieve positive ESG objectives.

Next week, ADGM will host the third annual Abu Dhabi Sustainable Finance Forum (ADSFF), which brings together some of the brightest minds in the field – including investors, regulators, international agencies and global financial institutions – to discuss sustainable finance and improving ESG frameworks. During the first ADSFF in 2019, ADGM implemented a series of measures to advance its Sustainable Finance Agenda, including the launch of the Abu Dhabi Sustainable Finance Declaration, which commenced with 25 signatories and was expanded to include a further 11 signatories in 2020. ADSFF's theme for this year is Financing Sustainable Recovery and Future Resilience.

The government and regulator-driven initiatives to promote sustainable finance that have been witnessed around the world are indicators that serve to demonstrate the criticality of public strategies and corporate goals of sustainable finance and ESG compliance.

As G20 countries begin to take leadership roles in promoting sustainable finance by standardising the industry through robust uniform frameworks and supporting developing countries with investments and national roadmaps for sustainable finance, it is expected that sustainable finance will be an important objective of corporations across the globe.

Sustainable finance has truly come of age and corporates must apply robust ESG in planning their future vision and strategy. This includes integrating environmental and social considerations into decision making, reflecting a deeper understanding of the risks and how to manage them, as well as recognising the opportunities to create value for all stakeholders.

Emmanuel Givanakis is deputy chief executive of ADGM Financial Services Regulatory Authority

By Emmanuel Givanakis / Deputy Chief Executive of ADGM Financial Services Regulatory Authority

27 MAR 2021

Raising the next generation to lead the UAE’s power and water sector

The conversation on sustainability usually centers around cutting carbon emissions and increasing renewables. However, sustainability goes past this to thinking about tomorrow’s future leaders. 

Businesses and countries targeting economic diversification, such as the UAE, focus on succession planning to ensure a steady stream of Emiratis to lead the sector into the next 50 years and beyond. 

The departure rate of CEOs at the world’s 2,500 largest publicly traded companies in 2000 was 12.9%, but only half were planned, according to research by PricewaterhouseCoopers (PwC). Fast-forward eight years to 2018, and overall turnovers climbed to 17.5%. However, planned successions drastically increased to make up nearly 70% of that figure.

There is no one way to plan for the next round of leaders. Secondments and job rotations can test employees’ adaptability and flexibility, while pushing to extend further than the original scope of work. It also provides the ability for professionals in emerging markets to work with more mature firms alongside experienced professionals with international experience.

This is what helped shape Majd Al Menhali, Chief Financial Officer for Mirfa International Power and Water Company (MIPCO), which operate Al Mirfa power generation and desalination plant with a capacity of 1.6 MW and 53 MIGD on behalf of owners TAQA (60%), ADFG (20%) and Engie (20%). He has fostered a culture of teamwork and implemented internal controls and processes, which he says are key to his success. Yet these skills didn’t come overnight. Al Menhali says many were learned during a secondment to ExxonMobil in Houston, changing his views on how organizations are run.

“Give yourself time to learn as much as you can,” he says adding that it’s important to recognize when it’s time to move on so that you always look to innovate rather than stagnate. 

This is just one step in a leadership succession plan, many of which start right at the point of hire. Proactive companies pinpoint candidates, help them develop professionally and even get them to consider their replacement when they move on to the next challenge. 

Yet, succession planning isn’t just about a handover. It takes shape in knowledge transfer.

A few questions after graduating a scholarship program led Alawi Al Jefri to his current position.
A leader from the program asked him where he saw himself. “Do you want to go to routine corporate work, do you want to work on operational assets, such as oil and gas, or are you seeking some exciting opportunities,” Al Jefri recounts.

And these questions are what led him to diving deeper into where he saw his path, leading him to positions with Mubadala and Masdar. He was able to work on exciting projects such as Hydrogen Power Abu Dhabi and London Array. He also spent time in Senegal and Jordan gaining skills from waste-to-energy projects before seizing the opportunity at Al Taweelah Refining. He then joined Abu Dhabi Power Company, which merged with TAQA in 2020, and stepped into the EMD role at the Fujairah Asia Power Company (FAPCO).  The project company, majority owned by TAQA, operates the Fujairah 2 power generation and desalination plant with a capacity of 2.1 GW and 53 MIGD. 

“I’m lucky – my experience with each of these entities was quite good for me,” Al Jefri says. “It has enriched and broadened my experience.”

He uses those questions to help prepare his employees today, asking where they see themselves when they retire. Al Jefri says that he wants to encourage his staff to lay the foundation to build a path leading them to that goal. “I tell them that once you see an opportunity, make sure you grab it. Enjoy and maximize the experience so you have no regrets about missed opportunities.” 

It’s the same for Abdulla Al Khemeiri, Executive Managing Director of Arabian Power Company, which operates the Umm Al Nar power generation and water desalination plant with a capacity of 2.2 GW and 95 MIGD. He says having clarity about your current role coupled with future objectives and targets is necessary for all levels. 

Companies that practiced successful succession planning approached it as developmental rather than a replacement process. And this is what Al Khemeiri hopes will help the UAE’s future power and water sector. 

His advice to the next generation: “You need to not only understand your existing role, but how you’d like it to evolve into for the future.”

By AbdulAziz Al Obaidli, Director of UAE Asset Management at TAQA Group

27 MAR 2021

Three steps to build a sustainable future for GCC families

Like many attendees, I found Abu Dhabi Sustainability Week (ADSW) generated renewed inspiration and better ideas about building a sustainable future. 

Unfortunately, after conferences end, like New Year’s resolutions, our excitement can quickly fade as we return to daily routines and obligations. However, our global challenges, and the opportunities they generate, require more consistent dedication; or as this year’s ADSW challenged us “How are you contributing to a decade of action?”

There are three interconnected areas for GCC families– their business, their different generations, and their portfolio – where the energy from ADSW can become meaningful action.

Family Business

Many families are assessing and preparing their own businesses for the implications of climate change - both physical and transition risks. 
Increasingly visible and severe, every business faces physical risks due to both event-driven or long-term shifts in climate patterns. The chance, and consequences, of any particular risk and impact will vary by sector, company, and location. 

Moreover, with growing public sentiment, countries and companies are being expected to take more action, and faster, to address their contribution to climate change and reduce their carbon emissions. This creates the corollary of transition risks, or the financial risks which could result as economy shifts leaving unprepared companies stranded. As heard in several “Work & Invest” panels, multinational corporations are seeking to transition and transform to be viable in a future low-carbon economy. 

Another area of discussion is whether family assets, sometimes long-held and cherished, will continue to maintain the income streams or attractive valuations in the coming years. Moreover, whether younger generations have the same appetite for their family name and legacy to be associated with carbon intensive assets. 

These are not always easy conversations. But helping to establish a clear family business vision and strategy, as well as knowledge of options, can ensure decisions are made consciously rather than by default or at a distressed moment. Conversations about existing businesses provide opportunities to diversify or augment family portfolio into new sectors too. Again, ADSW showcased many of these disruptive innovations ranging from circular economy to sustainable fashion, food, or cities, that could be valuable to family businesses in related sectors. 

Intergenerational Engagement

Secondly, families can benefit from the enthusiasm of their younger generations around sustainability. As well, their involvement can be a bridge to prepare them for forthcoming intergenerational wealth transfer. 

Younger generations, recognising they will probably be the most affected in the future by a failure to address climate breakdown, are becoming the advocates for making changes now. 
We recently conducted research into how to enable Smarter Succession in intergenerational wealth. We found in 56% of families it is the younger generations who are leading their families on sustainability matters. In fact, for GCC families this is slightly higher at 59%. 

We are seeing these “younger” generations, who may be in their 30s, 40s and 50s, take a more vocal and active role in management of family wealth and businesses. This is valuable as our research shows nearly half of GCC families are concerned that their children will take greater risks when they become responsible for the family wealth. Rather than exclude them, involving them earlier with the right space and boundaries can build trust and readiness to inherit wealth and carry on the family name when the time does come.

Family Portfolio 

Finally, families might also need to think on how to position their investment portfolios given the volatile markets and to be more sustainable. 

Throughout the third theme of “Work & Invest” and during Abu Dhabi Sustainable Finance Forum we heard a range of distinguished institutional, sovereign, and financial players make the case for sustainability in investment portfolios. So while I don’t need to repeat their counsel, I would encourage those who missed those sessions to review them. 

Sometimes investors struggle to be confident to effectively change their portfolios. In those cases, it can help to focus on three activities - education, articulation, and execution. 

Education starts with investors increasing their understanding when it comes to different investment approaches, and their implications, as well as what the evidence and research shows. In the area of sustainable and impact investing, we´re proud to have supported the Investing for Global Impact report, which surveyed over 300 leading families and family offices from 41 countries about their sustainable investing practices. Amongst a range of unique insights, most importantly we found that average portfolio allocation to sustainable investing is set to almost double in the next five years. 
It is also important that families or organisations articulate their values and beliefs for their investments. This provides the compass point for forthcoming changes. This usually requires a deeper discussion into what they want to stand for, to achieve with their portfolio, and want their legacy to be. This conversation can bridge generations, which can be particularly powerful.

Another important activity for investors to take into account is execution. This means identifying potential investments that fit their investment objectives and sustainability aims. 

Markets and the world this year continue to be challenged by the physical and economic dynamics of the pandemic. However, as ADSW reminded us, climate breakdown has returned to the agenda for governments in stimulus plans and with forthcoming COP26 this year. 

Therefore, families, taking action now across these three areas are likely to  be better positioned to enhance not only their wealth and legacy, but contribute in the coming decades to a more sustainable and inclusive world. 

Barclays Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No.122702) and is a member of the London Stock Exchange and NEX. Registered in England. Registered No. 1026167. Registered Office: 1 Churchill Place, London E14 5HP.

By Damian Payiatakis / Damian Payiatakis, Head of Sustainable and Impact Investing, Barclays

24 MAR 2021

Taking the Sustainable Road to Success

Sustainability is increasingly becoming a business imperative rather than a nice-to-have as consumers and investors are actively fuelling their decision-making by placing a high value on businesses acting with greater responsibility in regard to how they operate and the wider impact they have on the world. For businesses, it is fast becoming the mindset of no longer simply being survival of the fittest, it is survival of the most sustainable.

Companies now realize they must measure the impact they are making on the environment and the people they engage with directly or indirectly. Increasingly, gone are the days when the terms sustainability and corporate social responsibility were side initiatives in a business, they are now more central to the business strategy and operation. 
As a responsible business, CAFU takes sustainability very seriously by focusing efforts that help to improve the environment and wider community with practical measures that can make a difference. For CAFU, this takes the form of the company strategy, the CAFU Sustainability Deal, towards being responsible and embedding sustainability into practical actions that can make a difference to the world around us. 

Sustainability Driving Business Decisions

The case for climate change is a compelling one. The role of business in contributing positive action to this agenda is vitally important – it is why at Dubai born start-up CAFU, we believe that we, like others, should and must act responsibly in delivering a positive impact in the world.
At the heart of the sustainability approach by CAFU is the aim to plant one million Ghaf seeds which forms the central pillar of the CAFU Sustainability Deal in its mission towards becoming carbon neutral. 

As an innovative technology company born in Dubai, CAFU is harnessing its home-grown technology development towards helping to solve challenges faced by the world today and in the future in the efforts towards enabling a more sustainable world. 

Through CAFU’s bespoke technology solution and combined with an extensive R&D programme, it is using drone technology to map, plant, and monitor at scale the Ghaf tree plantation in the UAE desert environment.  Native to the UAE, the Ghaf tree is perfect for these harsh desert conditions found in the Emirates. The tree survives on very little water, improves the quality of the soil, and helps battle climate change by taking in up to 34.65 kg of Co2 emissions per tree, per year.  

With one million trees planted, they could absorb up to 34,650 tonnes of Co2 emissions per year. With a Ghaf tree able to live up to 120 years, that could mean that over 4.1 million tonnes of Co2 could be absorbed over their lifetime which would make an immense positive contribution to our world. 

Through the CAFU Sustainability Deal, the company is making business decisions to be responsible to the wider environment. It is why the company recently introduced a waterless car wash that delivers a high-quality service to its consumers but at the same is more environmentally friendly, it means business decisions focused on the sustainability agenda that can achieve both objectives, acting responsibly whilst also being of high value to the consumer. 

Green Human Resource

Bold leadership combined with a desire to act and live more responsibility can steer the business towards profit with sustainability. With this focus, the company is taking a raft of measures to operationalise several sustainability initiatives from plastic recycling across our estate through to reduction to the amount of paper we consume. In the newly created role of Sustainability and Community Manager, I am driving the leadership agenda of the company into practical steps to reduce the impact that we have as a company on the world. 

Purpose is the Key

Leading businesses now realize that purpose is just as important as profit. This may call for tough decision making at times, but supported by the right resources, both financial and intellectual, companies can serve a much greater purpose whilst also making profits – purely by acting responsibly. Increasingly, consumers are looking at the impact that brands have on the world around them and driving their purchasing and consumption decision making around sustainability values and practices being implemented by companies. 

Align to Sustainable Goals

Aligning your sustainability journey to pre-set goals is a great way to embark on this road towards a brighter future for the business as well as future generations. Our own efforts towards sustainability have led us to align CAFU with the United Nations Sustainable Development Goal 13 on Climate Action that is focused on creating a better environment through innovation and transformation in a rapidly evolving world. Having also signed-up to the SDG Ambition Accelerator programme, we are now able to align CAFU with the SDG objectives to improve measurement and performance towards achieving our sustainability goals.

At CAFU, we believe sustainability and innovation are perfect partners in making a positive impact to our customers, our community, and ultimately to the world. Organizations need to consider the wider impact of their business on the world and establish ways to reduce any negative impact on the environment by adapting to more eco-friendly solutions. The business community can achieve both excellent and innovative services to their customers, but also with careful consideration, they can take actions to positively impact the world, and ensure a bright future for generations to come.

By Nabra Al Busaidi / Sustainability and Community Manager at CAFU