Investments in environment, society and governance (ESG) are on the rise globally, and the UAE is set to lead that shift in the region through its start-ups.
The recently amended commercial law regarding foreign ownership of private companies and the bankruptcy law are both “positive steps” to position the UAE as the region’s hub for conscious investments, said Ramesh Jagannathan, managing director of StartAD, Abu Dhabi-based global accelerator.
Conscious investments, or investments in ESG, is changing the face of capitalism as corporates are realising “they have a social responsibility in the way they make their products and services,” added Jagannathan.
In an interview with Arabian Business, Jagannathan discusses the UAE’s potential for angel investments (where individuals provide capital for a business start-up) and the role StartAD is playing to position Abu Dhabi as a leader in ESG investments.
Are we seeing a rise in conscious investments in the UAE?
It’s definitely an opportunity right now.
A recent global study found that 93 percent of UAE investors believe they’re not compromising their investment performance by choosing ESG or sustainable investment; that’s in contrast to a global average of 82 percent. Also 66 percent of UAE investors expect sustainable investments to outperform the traditional investments.
So while the investment in this space in the UAE is small right now, the mind-set is there and the opportunity is big.
Why do you think the UAE is more open to conscious investment than other parts of the world?
Unfettered capitalism has been around in the Western world since after World War II and it has led to legacy thinking (outdated thinking, strategies and actions that no longer serve the way they once did) amidst the established corporations, even when it comes to doing social good.
We are not saying these companies are not good, but they are like a big ship that needs to change its direction; it will take time. Meanwhile, the UAE is a young country and it doesn’t have those legacy issues so it is easier for us to adapt and grow.
The wind is shifting towards investments in ESG and companies in the UAE can easily follow it.
What is the role that angel investors play in conscious investments?
In start-ups, institutional investors like venture capitalists don’t come in until a later stage because the valuation is still a little bit murky at the beginning. So this is where the angel investors step in and this is why they play a key role in conscious investments.
Usually they are previously successful entrepreneurs in their region who are able to take the risk because they understand what works and what doesn’t.
The UAE is an emerging ecosystem so we don’t have that many successful entrepreneurs here; that’s why we run Angel Rising and the Conscious Investment Fellowship to teach them the latest trends in angel investing.
Abu Dhabi has the highest per capita potential angel wealth in the world because it has oil wealth but we need to teach them the mechanics. So for me, all the ingredients for a master recipe are here; we just need to pull it off and have a long-term plan.
What are the main elements of this long-term plan?
First of all there is the front-end, where StartAD’s investment fellowship comes in again. This is where we put the thought leadership framework in place and brought global minds to this region to talk about conscious investing.
The other end is the private sector: we need to get the engagement of all the major private companies in the region to actually participate with us in this change and move towards conscious investing.
It’s like in baseball where there’s a pitcher and a catcher: we are throwing it and it has to be captured by the private companies. The real players are the start-ups, they are the ones actually playing the game.
Also, the government has to work with us closely in setting the regulatory policies. I also think it’s not just the UAE Government, though, we need to lead the way in bringing other governments like China and India into the fold, especially now that China has the new digital Silk Road Initiative.
What role will StartAD play in this?
The entry into the MENA market is not homogenous. It’s not like in the US where if you want to enter the US market, you can form a company in Delaware, which would address the needs of all US consumers.
In the MENA region, you can get the UAE but getting Jordan or Egypt is different. So we see StartAD as the entry point where we understand the heterogeneity of the market in the MENA and Africa and we can create that pipeline.
To me, these are exciting opportunities for Abu Dhabi, StartAD and the UAE to really lead the change.
What do you think would motivate the private sector to join these efforts?
They will be making money. Like I said before, the majority of the UAE investors feel they are not compromising on the return on investment by doing this.
I think the government can also help in de-risking the process so the investors feel more comfortable. Abu Dhabi Investment Office (ADIO) is a good example of that, where they are underwriting some of the R&D expenses of some companies that make products in the ESG space.
What role do women play in the angel investors’ space, and specifically women from the region?
60 percent of the investors in the Conscious Investor Fellowship are women, while the global average is at 20 percent, so there is a significant participation of women investors in the space.
To me, the way to make change is not to be prescriptive. I come from the US, which is very advanced when it comes to start-ups, but one thing that is a little bit concerning to me is that it tends to be very prescriptive in that they try to tell the world how to live and how to do things.
The recent Conscious Investor Fellowship organized by startAD, VentureSouq, and KAUST saw 60% participation from female investors representing family offices, corporate investments, and angel investments
As more women power startups and investments, their unique perspective opens the market to goods and services not imagined before. Further, they constitute half of the world’s population -which means these newly developed products have a massive market opportunity. The approach of increasing inclusivity of gender isn’t to make that prescriptive.
If you encourage and empower women to be part of this change, it will automatically happen because they are not going to be prescriptive.
That’s why it’s important to have females on board seats because they basically infiltrate the whole landscape so they bring diversity of thought and the change then happens from the ground up.
Do you see the newly announced amendments to the commercial law and foreign ownership as a positive move for start-ups? What are its implications on young businesses?
Yes absolutely, that needed to happen. The same thing going back to the bankruptcy laws.
Ten years ago, we did not have a bankruptcy law so that was very worrisome because, in start-ups, failure is a common norm.
These are all positive steps and, actually, it’s happening very fast.
I’m also part of an economic policy working group in Abu Dhabi where we are looking to see how to remove asymmetries between the public sector, the private sector and the educational sector. We are looking at how to create policies that are sensitive to all three sectors which play a key role.
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