Dubai: A course on teaching the finer principles of ESG – environmental social governance – investing? In Abu Dhabi, you can do just that and, according to a senior academic, it isn’t as far-fetched as it seems.
“Today, ESG-linked investment more an art than a science,” said Bernardo Bortolotti, Visiting Professor of Economics at NYUAD (New York University Abu Dhabi). “But also, economics, finance and accounting were neither considered exact sciences in the past. Yet, overtime, they gained a scientific reputation, thanks to theoretical contributions, hypotheses testing, and model validation.
“ESG-linked investments are still in the early stage, and they need academic rigor and scientific discipline. This is exactly the ultimate objective: foster a disciplined, research-based approach to ESG investment, with a strong focus on impact measurement and management.”
NYUAD has just teamed up with Abu Dhabi wealth fund Mubadala Investment Co. and Al Maskari Holding to launch an aptly-named Transition Investment Lab, of which a course on ESG is a part. “For the time being, TIL is a research center, but as soon as the field consolidates, I am sure it will become integral part of the curricula of all major international business schools,” said Bortolotti.
ESG-linked investments are still in the early stage, and they need academic rigor and scientific discipline
In terms of timing, the three partners could not have got it better. ESG is a hot investment theme these days, and since the pandemic struck, even more so. Stripped off all the jargon, ESG is about committing investor funds only in ways that will have solid outcomes for the environment and the wider society at large. Any investment category or industry that does not meet the ESG specified benchmarks will not stand a chance.
ESG investments are getting to be serious business, and not just about fund managers wanting to be seen as doing the right thing. Global investors are pulling out from funds they believe are incapable of doing something for the greater good – and fund managers have taken note.
The Rockefeller Foundation estimates the ESG market size from $500 billion to $12 trillion – “this variance being the result of the roles and goals of specific investors and the definitions they use for reporting,” the Professor said. “A conservative estimate by the Global Impact Investing Network using a bottoms-up survey methodology leads to a total market size of roughly $715 billion.
“Regardless of the market-sizing approach, ESG - and especially ‘impact investing’ - is a rapidly growing field, pushed by consumer preferences, regulatory pressure, and shareholder activism.”
Make ESG learnings a core
But can what is essentially an investment theme be filtered down into the confines of a course or a classroom?
“I think that investor preferences will converge towards consensus strategies based on measurable impact,” said Bortolotti. “In the early stage of ESG investment, a common approach was to divest oil stock outright in the name on sustainability, [with] hydrocarbons widely considered the main culprits of climate change.
“Nowadays, investments reducing the environmental impact in the oil and gas sector have entered ESG portfolios based on the measurable, positive impact on the planet.”
As Abu Dhabi’s most influential investor, Mubadala’s presence in the Transition Investment Lab is quiet a statement. “We believe all investments have ESG-related considerations that need to be integrated into our investment and asset management decision-making,” said Ahmed Al Calily, Chief Strategy and Risk Officer of Mubadala Investment Company.
“Our approach to ‘responsible investing’ includes integrating ESG principles and considerations into the process to facilitate a path to unlocking further value. These steps, taken together, can contribute to achieving both financial returns and a more sustainable future.”
Already playing a part
For the Al Maskari family, investing based on best social practices is already well integrated into its processes.
With its newly launched asset management platform, MEASA Partners, “We believe that a solid localized ESG methodology for manager selection can help reduce some of the reluctance for emerging and frontier market investments often found amongst institutional investors,” said Nabyl Al Maskari, Executive Chairman at the Group. “Particularly, by complementing the traditional financial risk-return evaluation of managers - with a well-developed academic backed impact assessment framework - we believe that potential and perceived reputational risk can be significantly reduced.”