Environmental, social and governance (ESG) standards will play a critical role in real estate investment and purchasing decisions over the next decade, according to a senior corporate banking executive in the UAE.
“Asset managers and fund allocators are increasingly prioritising companies that are ESG-focused, versus those that are not,” said Asad Rahman, senior director, real estate finance and advisory at Dubai-based Mashreq Bank.
“ESG wasn’t a popular concept that was discussed with GCC clients four years ago, even though the term was first coined back in 2004 but now, the concept is widely discussed by our clients, regardless of whether they’re actively deployed in this theme at present or sitting on the sidelines,” he added.
His comments comes as, globally, nearly $490 billion of so-called green bonds were sold in 2020 along with a further $347bn allocated into ESG-focused investment funds.
For 2021, sustainable-debt issuance is expected to reach $650bn while money flows to ESG funds is set to continue.
The impact of climate change is becoming increasingly prevalent across the globe. There is an urgent need for businesses to adopt long-term sustainable strategies, and more so in the water-stressed GCC region.
This change is a necessity for the real estate sector – an estimated 40 percent of all global carbon emissions come from the construction and operation of buildings.
At the same time, real estate in the GCC needs to look beyond building just sustainable and energy efficient buildings.
“Inclusion, diversity, work-life balance etc – these need to play just as much of a role,” said Rahman. “It is also about the health and wellbeing of the community, and this will play a significant part in investor decisions in the years ahead.”
The focus on sustainable, smart and healthy communities also underpins Dubai’s future urban strategies, he added.
District 2020, which is Expo 2020 Dubai’s legacy project and one of the five key centres identified in the Dubai 2040 masterplan, has been designed as a “people-first, purpose-driven community”. The district is keen to position itself as a tech-enabled, futuristic urban hub prioritising wellbeing for residents and workers alike.
Rahman noted that being ESG-compliant to attract international capital will become more and more important, adding that a few listed exchange-traded funds (ETFs) are actively prioritising ESG investments, and that companies that don’t take ESG seriously “may experience a deviation” in their future fund allocations.
“In time, there will be more government influence to keep up with global investment themes of ESG,” he said. “The renewables space is here to stay and the reliance on fossil fuels is changing.”
Investor concerns regarding reporting and sufficient detail, however, persist, he said.
“Regulations are not yet globally standardised, but multi-jurisdictional collaborations are increasingly gaining momentum,” said Rahman.
He added that while Dubai Financial Market has an ESG reporting guide that suggests a number of different metrics for listed companies, there are no penalties if the firms don’t adhere to these guidelines.
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