Global sovereign investor investments in funds and enterprises adhering to environmental, social, and governance norms increased more than threefold last year, as government investment arms continued to add sustainability-related assets to their portfolios.
According to Finbold.com and statistics from industry tracker Global SWF, sovereign wealth fund investments in the ESG field increased to $22.7 billion at the end of the year, up from $7.2 billion recorded in 2020.
The number of sustainability-related investment transactions by the end of 2021 increased to 37 from 19 the previous year.
In 2019, $5.2 billion was invested in firms and funds that monitor sustainable equities and bonds. It remained relatively low in the six years preceding the 2021 increase, with 2016 being the lowest figure.
While ESG investments increased, sovereign wealth funds’ capital deployment into oil and gas-related assets fell 46.92 percent to $6.9 billion, down from $13 billion in 2020. According to the study, eight oil and gas industry transactions were registered last year, the lowest number of transactions ever.
As the globe emerges from the pandemic-driven battle, sustainable investments and the rebuilding of healthier and greener economies have come into sharp focus. It is becoming a prominent subject for investors who are reorganizing their portfolios, reducing their investment in hydrocarbons and seeking rewards in greener assets and funds that adhere to ESG norms.
Sustainability-linked investments are at the heart of the capital deployment plans of the UAE’s sovereign wealth funds, which are investing tens of billions of dollars in the UAE.
“Like all investors, we are convinced that sustainability is extremely important, and that it will become even more important in the future,” Jean-Paul Villain, director of the Abu Dhabi Investment Authority’s strategy and planning department, said last year at the Abu Dhabi Sustainable Finance Forum.
Mubadala Investment Company, which won the top award in the global sovereign wealth fund industry and was named the “2021 Fund of the Year” by Global SWF, also prioritizes ESG. Last year, David Crofts, executive director of enterprise risk management and responsible investing at Mubadala Investment Company, stated that it is “increasingly relevant to the success of our investment, both in terms of downside risk and opportunity.”
Yasir Al Rumayyan, governor of Saudi Arabia’s Public Investment Fund, has also encouraged the global investment community to use the “unique opportunity” presented by the Covid-19 epidemic to reshape the global economic landscape.
In 2021, the assets handled by the world’s sovereign wealth funds and public pension funds hit a new high of $31.9 trillion. According to Global SWF’s annual report, assets managed by sovereign wealth funds increased by 6% to $10.5 trillion last year, while those managed by public pension systems increased by 8.7% to $21.4 trillion.
Expansion in sustainable investment in 2021 suggests that the ESG field has financial attractiveness for sovereign wealth funds and may play an important role in its growth.
“Last year’s growth demonstrates that the ESG field has financial attractiveness for investors, and SWFs play a critical role,” Finbold.com said, citing the latest Global SWF report.
“In general, SWFs are perfectly positioned to advance the global environmental, ESG agenda, with investments in specific products being the first step.”
Sustainable investment is an overarching subject for individual and institutional investors, as well as global fund managers, just as it is for sovereign investors. As ESG becomes a more essential issue, BlackRock, the world’s largest asset manager, anticipates sustainability to play an increasing part in how investor portfolios will shape out.
“Whether it’s asset managers or the customers we manage money for, sustainable transition has become extremely essential to the way investors are thinking in most countries,” Stephen Cohen, BlackRock’s president of Europe, Middle East, and Africa operations, told The National in November.
The International Monetary Fund asked the $50 trillion global investment funds sector in October to increase efforts to finance the transition to a greener economy and assist alleviate the consequences of climate change.