“ESG 2.0” to potentially unlock investment worth trillions in emerging markets

Environmental, social, and governance (ESG) may be a buzzword of talking shops across the Western world, but many in the emerging markets feel left out of the conversation.

 

Global ESG assets under management are on track to exceed $50 trillion by 2025 according to Bloomberg estimates, with private equity, pension and sovereign wealth funds increasingly adopting standards to limit their investments to companies seen as a force for good.

 

But for Richard Attias, chief executive of the FII Institute, a modern inclusive ESG framework requires new methodologies that take into account the needs of emerging markets.

 

This is why the Future Investment Initiative Institute, a non-profit foundation based in Riyadh, today launched an alternative ESG framework that Attias says could unlock “trillions of dollars” of investment opportunities in the emerging economies. 

 

“The world is moving very fast – everything has to be adjusted and adapted. So this is why we need to support the emerging economies and increasingly join the global framework of ESG,” Attias told PIF Global Insights in an interview.

 

The FII’s “Inclusive ESG Framework and Scoring Methodology” was launched today at an event held by the Institute in London. The Inclusive ESG for Emerging Markets included a keynote panel featuring His Excellency Yasir Al-Rumayyan, Governor of the Public Investment Fund and Chairman of the FII Institute, and Larry Fink, CEO of BlackRock. 

 

Participants hailed from the public and private sectors and included policymakers, global CEOs, institutional investors and young entrepreneurs. Speakers included: Noel Quinn, Group CEO of HSBC; HE Yasmine Fouad, Egypt’s Minister of Environment; Matteo Renzi, Former Prime Minister of Italy; Rania Nashar, PIF’s Head of Compliance and Governance, and Robert Wilt, CEO of Ma’aden, the Saudi mining and metals company majority owned by PIF. 

 

Here, Attias outlines the purpose of the summit, as well as the launch of what he calls the “ESG 2.0” framework. 

 

 

We realized that money is not always going to some regions, to some companies, because they are not considered to be totally ESG compatible. And the emerging markets have been left on the side a little bit. Our chairman, His Excellency Yasir Al-Rumayyan, has said “we need to be inclusive” – and this is a mission of the FII Institute. We realized that investment is not inclusive enough. So we decided to be the strong voice of this absolute necessity to be inclusive: We want to be the bridge between the traditional economy and the new economy. 

 

For the past two years we have worked with investors, stock markets, experts, specialists and CEOs in emerging-market economies, to see what would be the ideal framework to help everybody benefit from investment and to be ESG compatible. I'm calling this “ESG 2.0.” We hired the best experts to help us build a new rating methodology, a new scoring framework, and this is what we presented in London. 

 

 

In Africa, Asia, Latin America, and the Gulf region, we are not at the same level of governance, of social rules and policies, and environmental framework, as in the U.S. or Europe. The world needs to be fair; investors and rating methodologies cannot expect the same from countries that are transforming and developing, which by definition will not be at the same level of carbon emissions and governance as the very advanced economies. Yes, we are fighting to be there, but we need time. As these economies move from being emerging to developed, we cannot exclude them from the investment ecosystem. 

 
Is it just the level of ESG compliance required in the emerging markets that needs to be reassessed, or do we need completely different criteria? 

It's both. What we presented is a combination of what we can do to be closer to the developed countries, but at the same time I think we need some adjustment. Not one single methodology is perfect. The world is moving very fast; everything is changing, and everything has to be adjusted and adapted. Therefore, we need to support the emerging economies and increasingly join the global framework of ESG. 

 

We are talking about trillions of dollars. And we are also talking about the impact. The FII Institute’s motto is “impact on humanity.” We are taking this new ESG methodology very seriously because it will unlock multiple investments, and create jobs. This is how you create the virtuous circle. 

 

For countries like Saudi Arabia, with such amazing growth, if investors take into consideration this new ESG framework, the sky is the limit in terms of foreign direct investment. And it will have immediate positive consequences around job creation and new sectors that will be growing, like entertainment, food, retail, and so on. So the impact will be massive. 

 

The markets are up and down. And I don't think this will be just temporary. We are in a new era, and the new norm is volatility. We had the pandemic, this conflict, and we will have other issues. So we need to never be taken by surprise. Turmoil in the market will happen all the time; ESG has to be adapted to this new norm.

 

The main outcome, I hope, will be to make sure that the ESG 2.0 framework will be embraced, adopted, and supported by all. Because we don't have any agenda; we are a not-for-profit foundation. We just want to impact humanity. And the way to do this is to come with ideas, solutions, which could unlock multiple investments, to help grow and build sustainable models for the whole world, including the emerging markets.