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Understanding sustainable investments

Sustainable investments can contribute to social good while delivering capital returns. Our guide explains everything UAE residents need to know about this trending new asset class

Sustainable investing has emerged as one of the biggest trends in finance over the past year. Surging investor interest has seen the sector’s assets have hit a record high for four consecutive quarters, or an estimated $2 trillion as of the first quarter of 2021. But what does this mean for UAE investors and should they consider sustainable investment avenues?

What is sustainable investing?

In a nutshell, sustainable investment channels investor capital into companies that are working to combat climate change and ecological degradation while promoting corporate and social responsibility. Sometimes referred to as ESG (Environmental, Social and Governance) investing, the term broadly covers investments that seek to positively impact society and the environment alongside the traditional focus on business performance and profit.

Such investing may take into account companies in various sectors, from climate change and renewable energy to health, safety, and community development.

Why has sustainable investing become more important?

The popularity of sustainable investing ties into rising awareness of humanity’s impact on the environment. Businesses across the world have been begun reporting on ESG metrics as stakeholders begin to hold them to account and make consumption decisions based on a product’s ecological footprint.

As millennials and Gen Z embark on an investment cycle, they are bringing their socially conscious values to their portfolio. Studies show that millennial investors are nearly twice as likely as the preceding generations to invest in companies or funds aimed at specific environmental or social results.

As millennials and Gen Z embark on an investment cycle, they are bringing their socially conscious values to their portfolio. Studies show that millennial investors are nearly twice as likely as the preceding generations to invest in companies or funds aimed at specific environmental or social results.

How to determine if investments are sustainable

Some companies will naturally be in the business of sustainability because of the nature of their activities. Investors considering putting their money into sustainable asset classes must ask if they are certified or carry a seal of approval, such as the MSCI ESG Criteria.

Several non-profit organizations track funds according to different metrics, including deforestation, gender equality or shariah compliance.

How to make sustainable investments in the UAE

Seasoned investors will want to seek out their own opportunities across asset classes, whether these are equities, bonds, hedge funds, exchange-traded funds, index funds or sustainable real estate investments.

For a more hands-off approach, you could choose a robo-advisor, a platform relying on computer algorithms and advanced software to manage your investment portfolio. But for many investors, nothing replaces human advice. In such cases, it’s worth consulting a specialized advisor, such as a certified financial planner specializing in sustainable investing or asking your bank’s wealth management arm for advice. Several UAE banks have wealth management divisions with specialized advisors that work to build customized portfolios according to each individual’s needs.

Whichever route you choose, be aware that all investments carry some form of risk, and it may be possible to lose a portion of your capital.