Increased investor focus on environmental, social and governance metrics is driving a race to the top as companies look to raise their ESG profiles.
Is ESG investing on the brink of becoming a bubble? Some investors wonder. They look at soaring clean energy stocks and palpable investor enthusiasm for electric cars and question whether ESG investing is a fad. We really don’t think so.
The concern reflects a confusion – combining two different strategies, ESG investing and investing in sustainability themes.
ESG investing represents a lasting adoption of a new investing methodology that can strengthen businesses and boost portfolio returns by considering material E, S and G metrics.
By contrast, companies that are emerging to address sustainability trends are prone to rise and fall with market sentiment – both from periods of rapid growth and correction from elevated valuations.
ESG investing vs investing in sustainability
ESG investing is an investment strategy in which environmental, social and governance factors are integrated into the due diligence and financial analysis of investment managers. Companies that focus on ESG factors tend to have better and more stable long-term performance.
On the other hand, investing in sustainability themes involves investing in companies, technologies and projects that target specific sustainability themes and are set to grow rapidly and consistently.
In the UAE, 80 per cent of investors know what sustainable investing is, 80 per cent expressed an interest in ESG investments and 40 per cent of those who had not yet invested in sustainable solutions said they planned to do so in the future, according to a survey by Standard Chartered. Also, Saudi Arabia plans to deploy 50 per cent of its investments in renewable and sustainable power sources.
Companies that focus on ESG factors tend to have better and more stable long-term performance
Tara Smyth,
region head, Middle East, North Africa and Turkey, JP Morgan Private Bank
How to spot an investing bubble
Spotting a bubble is never simple, but generally there are the following patterns:
- A narrative of opportunity and rapid growth that persuades people that they need to “get in now”
- Favourable financial conditions, often accompanied by government support
- Visible, rapid growth
Some sustainability themes have recently shown early warning signs of a bubble and we expect this pattern will likely repeat. Periods of investor exuberance and retreat will come and go throughout the decade, even as sustainability themes become increasingly entrenched in the global economy.
A shift in perspective
In contrast to sustainability trends that may lead to bubble-like valuations, ESG is not a trend to be investing in. It’s something entirely different – an evolution of investment strategy itself.
In essence, that’s why we believe ESG investing cannot become a bubble. There has been a shift in how companies and investors view ESG factors and the importance they attach to them relative to other investing considerations.
Companies similarly focus on material ESG issues. Indeed, many firms are looking to do more to incorporate ESG considerations into their business strategies – to both strengthen their bottom lines and raise their current ESG profiles with investors.
We do see some risk of “greenwashing” where companies act to create the illusion (but not the reality) of positive ESG change. But, on the whole, we see a virtuous cycle of rising shareholder expectations driving a race to the top among companies with the highest ESG ratings. These companies then reap the rewards, which could include a better share price performance relative to their peers.
A modest boost to risk-adjusted returns
When investors focus on material ESG issues, they can deliver stronger results. Research also shows that incorporating ESG factors appears to provide a modest boost to returns and risk-adjusted performance.
Amid growing evidence of the effectiveness of ESG investing, asset managers who ignore these issues may find themselves less and less able to attract and retain assets.
Talk of a bubble in ESG investing underestimates the hold these issues now have on the finance industry. We believe the changes in corporate and investor attitudes towards ESG investing are irreversible.
Investing in sustainability themes can temporarily become a bubble, but it’s a different story for ESG investing.
It’s not surprising that many people have combined two separate subjects, ESG investing and sustainability themes. They do cover much of the same territory after all. But the differences between them are significant.
While sustainability themes can deliver above-market returns while aligning investor capital to key impact areas, they can temporarily lead to a market bubble. ESG investing, on the other hand, represents a shift in investment methodology – well beyond any potential market bubble.
Tara Smyth is region head for the Middle East, North Africa and Turkey at JP Morgan Private Bank.
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Zidane's managerial achievements
La Liga: 2016/17
Spanish Super Cup: 2017
Uefa Champions League: 2015/16, 2016/17, 2017/18
Uefa Super Cup: 2016, 2017
Fifa Club World Cup: 2016, 2017
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UAE currency: the story behind the money in your pockets
How much of your income do you need to save?
The more you save, the sooner you can retire. Tuan Phan, a board member of SimplyFI.com, says if you save just 5 per cent of your salary, you can expect to work for another 66 years before you are able to retire without too large a drop in income.
In other words, you will not save enough to retire comfortably. If you save 15 per cent, you can forward to another 43 working years. Up that to 40 per cent of your income, and your remaining working life drops to just 22 years. (see table)
Obviously, this is only a rough guide. How much you save will depend on variables, not least your salary and how much you already have in your pension pot. But it shows what you need to do to achieve financial independence.
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If you go…
Emirates launched a new daily service to Mexico City this week, flying via Barcelona from Dh3,995.
Emirati citizens are among 67 nationalities who do not require a visa to Mexico. Entry is granted on arrival for stays of up to 180 days.
88 Video's most popular rentals
Avengers 3: Infinity War: an American superhero film released in 2018 and based on the Marvel Comics story.
Sholay: a 1975 Indian action-adventure film. It follows the adventures of two criminals hired by police to catch a vagabond. The film was panned on release but is now considered a classic.
Lucifer: is a 2019 Malayalam-language action film. It dives into the gritty world of Kerala’s politics and has become one of the highest-grossing Malayalam films of all time.
UAE currency: the story behind the money in your pockets
Mohammed bin Zayed Majlis
The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
Where to donate in the UAE
The Emirates Charity Portal
You can donate to several registered charities through a “donation catalogue”. The use of the donation is quite specific, such as buying a fan for a poor family in Niger for Dh130.
The General Authority of Islamic Affairs & Endowments
The site has an e-donation service accepting debit card, credit card or e-Dirham, an electronic payment tool developed by the Ministry of Finance and First Abu Dhabi Bank.
Al Noor Special Needs Centre
You can donate online or order Smiles n’ Stuff products handcrafted by Al Noor students. The centre publishes a wish list of extras needed, starting at Dh500.
Beit Al Khair Society
Beit Al Khair Society has the motto “From – and to – the UAE,” with donations going towards the neediest in the country. Its website has a list of physical donation sites, but people can also contribute money by SMS, bank transfer and through the hotline 800-22554.
Dar Al Ber Society
Dar Al Ber Society, which has charity projects in 39 countries, accept cash payments, money transfers or SMS donations. Its donation hotline is 800-79.
Dubai Cares
Dubai Cares provides several options for individuals and companies to donate, including online, through banks, at retail outlets, via phone and by purchasing Dubai Cares branded merchandise. It is currently running a campaign called Bookings 2030, which allows people to help change the future of six underprivileged children and young people.
Emirates Airline Foundation
Those who travel on Emirates have undoubtedly seen the little donation envelopes in the seat pockets. But the foundation also accepts donations online and in the form of Skywards Miles. Donated miles are used to sponsor travel for doctors, surgeons, engineers and other professionals volunteering on humanitarian missions around the world.
Emirates Red Crescent
On the Emirates Red Crescent website you can choose between 35 different purposes for your donation, such as providing food for fasters, supporting debtors and contributing to a refugee women fund. It also has a list of bank accounts for each donation type.
Gulf for Good
Gulf for Good raises funds for partner charity projects through challenges, like climbing Kilimanjaro and cycling through Thailand. This year’s projects are in partnership with Street Child Nepal, Larchfield Kids, the Foundation for African Empowerment and SOS Children's Villages. Since 2001, the organisation has raised more than $3.5 million (Dh12.8m) in support of over 50 children’s charities.
Noor Dubai Foundation
Sheikh Mohammed bin Rashid Al Maktoum launched the Noor Dubai Foundation a decade ago with the aim of eliminating all forms of preventable blindness globally. You can donate Dh50 to support mobile eye camps by texting the word “Noor” to 4565 (Etisalat) or 4849 (du).
EMERGENCY PHONE NUMBERS
Estijaba – 8001717 – number to call to request coronavirus testing
Ministry of Health and Prevention – 80011111
Dubai Health Authority – 800342 – The number to book a free video or voice consultation with a doctor or connect to a local health centre
Emirates airline – 600555555
Etihad Airways – 600555666
Ambulance – 998
Knowledge and Human Development Authority – 8005432 ext. 4 for Covid-19 queries
Pharaoh's curse
British aristocrat Lord Carnarvon, who funded the expedition to find the Tutankhamun tomb, died in a Cairo hotel four months after the crypt was opened.
He had been in poor health for many years after a car crash, and a mosquito bite made worse by a shaving cut led to blood poisoning and pneumonia.
Reports at the time said Lord Carnarvon suffered from “pain as the inflammation affected the nasal passages and eyes”.
Decades later, scientists contended he had died of aspergillosis after inhaling spores of the fungus aspergillus in the tomb, which can lie dormant for months. The fact several others who entered were also found dead withiin a short time led to the myth of the curse.
ENGLAND SQUAD
Eoin Morgan (captain), Moeen Ali, Jonny Bairstow, Sam Billings, Jos Buttler, Tom Curran, Alex Hales, Liam Plunkett, Adil Rashid, Joe Root, Jason Roy, Ben Stokes, David Willey, Chris Woakes, Mark Wood
'Manmarziyaan' (Colour Yellow Productions, Phantom Films)
Director: Anurag Kashyap
Cast: Abhishek Bachchan, Taapsee Pannu, Vicky Kaushal
Rating: 3.5/5
UAE currency: the story behind the money in your pockets
