A growing awareness of dwindling global resources and bad corporate actors has galvanized investors, moving them past nebulous concepts of “corporate sustainability.”
Shareholders today seek to support organizations positively managing their risks and opportunities relating to environmental, social, and governance criteria (ESG).
To underscore the magnitude of this focus, a recent analysis by Bloomberg Intelligence1 estimates global ESG assets will exceed $53 trillion by 2025, over 35% of the $140 trillion assets under management.
Investment funds have led the way in ESG investments for many years, with one of the largest independent global funds, Dubai Investment Fund (DIF), recently creating a dedicated ESG investment department. Eustace Osborn, the Head of the new ESG Investment department at DIF, feels that ESG investing is the way of the future. Osborn comments, “The term ESG gained popularity during the last two years and now represents one of the major trends in the financial and corporate world.”
Since being established in 2001, Dubai Investment Fund’s primary focus has been the responsible investment of client funds into ESGs to achieve sustainable growth for their stakeholders. DIF considers ESG considerations integral to investment strategies for institutional clients. As an active ESG investor, it uses in-house proprietary research, third-party insights, and a critical analysis of company-specific ESG factors to parallel and balance its financial assessments.
The fund’s investments in the past decade have included a focus on climate change, green energy, fostering healthier workplaces, and sustainable waste.
Eustace Osborn was chosen as the head of the DIF’s ESG Investment Department in July, 2022. According to a research conducted by the company, every US$10 million of investments in renewable energy projects and energy efficient products should bring at least 8.5% of profit annually.
In 2014, DIF invested in shares and took stake in Brookfield Renewable Partners L.P. The shares were bought on the stock exchange in three stages at an average price of about $15 each. The figures showed that renewable energy sources were becoming increasingly cost-competitive. Encouraged by the smart money’s betting on clean energy, in 2015 DIF made an investment and took stake in Northland Power Inc. by adding their shares to its investment portfolio.
However, an important task for the ESG department was not just the purchase of shares in promising companies, but also direct investments in ESG-friendly renewable energy projects. Such projects in 2015 were Skill Fuel and Kerne. The Kerne project included the development and construction of a solar power plant in South Africa. The project was valued at $73.5 million, of which 60% of direct investment came from the Dubai Investment Fund. The Skill Fuel project, in turn, was much more ambitious. With an estimated cost of over $190 million, this project combined the research, development and construction of solar and wind power stations in Australia. DIF has invested more than $110 million in the Skill Fuel project. Besides, the same year, DIF made successful investments in shares of two solar energy oriented companies – SolarEdge Technologies and Sunrun Inc., whose shares subsequently greatly rose in price since the moment they appeared on the stock exchange. More recent investments in 2020 and 2021 have focused on utilities and healthcare, steelmaking, and solar technology.
Not content only to invest, the Dubai Investment Fund is actively campaigning for greater social and corporate awareness of climate change, renewable energy, innovative technology, and ESG. In May this year, DIF hosted an inaugural three-day international conference in Dubai attended by hundreds of participants worldwide. The event’s key topics were the major changes affecting the world economy and how to find new ways for sustainable economic development. The panel discussion topics included sustainable energy generation, emerging technologies and public health, and responsible investment. DIF has announced this conference will be an annual event in the ESG calendar.
Recent studies confirm that ESG has a positive and significant impact on a company’s financial performance, with high ESG firms showing greater financial performance than those with a low ESG focus. ESG-positive companies also perform better through adverse economic events, with a recent study6 on the impact of the COVID pandemic concluding that low-ESG firms devalued faster than their sustainably-focused peers.
While the rapid increase in global ESG investing is fueling concerns from skeptics about an ‘ESG bubble’ or that sustainable investing is simply a fad, the reality of the past decade and the shift in society’s values suggest the opposite. Some of the largest investment funds in the world are doubling down on ESG as the way of the future, with the Dubai Investment Fund joined by other investing giants such as US-based Parnassus, Pictet in Luxembourg, and Stewart Investors in the UK. Corporations are beginning to take heed as shareholders and investors vote with their money for humankind’s long-term benefit. In the words of Eustace Osborn from Dubai Investment Fund, “We believe that paying attention to ESG factors is essential for any business strategy that attempts to be sustainable and future-proof.”