KSA عربي
KSA عربي
Global عربي
Socially responsible or sustainable investing has been snowballing for decades. It wasn’t until 2004 though that it really began to hit the mainstream.
That’s when a United Nations report titled “Who Cares Wins” encouraged business leaders and stakeholders to embrace the now-familiar concept of ESG, or investing in companies, funds and projects that prioritize “environmental, social, and governance” factors, rather than exclusively profits.
While the movement has seen some pushback in recent years (after centering ESG in his 2021 letter to investors,
Blackrock CEO Larry Fink omitted any reference to it in 2025), there’s no denying that it makes up a mammoth portion of global investing. To highlight just two stats: Moody’s expects $1 trillion in sustainable bonds (more on those below) to be issued in 2025. Another estimate sees global ESG assets hitting between $35 and $50 trillion by 2030.
The point is, ESG doesn’t seem to be going away. And in our patch, the UAE and Saudi Arabia, it only seems to be growing stronger. In this post we’ll break down the state of play in sustainable investing, with an eye to the Gulf region.
Key to sustainable investing is what is known as negative screening. This is when investors create blacklists to exclude companies or projects that violate ESG principles.
That can mean filtering out companies involved in areas like alcohol, tobacco, and weapons (nothing new for halal investors) or which have a large carbon footprint or poor labor practices.
A famous early example came in 2015 when Norway’s sovereign wealth fund divested from energy companies that were heavily involved in coal.
In recent years a whole industry has emerged around policing and promoting ESG, with firms serving as sustainable ratings agencies and ESG auditors, and new investment products popping up regularly that focus on the trend.
For example, MSCI and Sustainalytics specialize in what are known as ESG ratings, meaning they assign ratings to companies and funds in a way that’s similar to a credit rating, giving them both holistic scores and detailed assessments of their ESG performance (even Bloomberg offers ESG scores).
In order to receive positive ratings, companies have to disclose information on things like their carbon footprint, and auditors like PwC and others certify the claims in order to prevent malpractice like greenwashing, when companies market themselves as taking bold green initiatives while actually doing very little.
Investors then use these ESG scores in their investment decisions, either by excluding companies they see as performing poorly on ESG, or by actively including ones that stack up well.
According to Morgan Stanley, more than three-quarters of individual investors say they want to invest in companies which, along with performing well financially, act positively on social and/or environmental issues.
For investors who want to invest specifically on the basis of ESG, there’s many ETFs designed to track strong ESG companies.
A popular example is the SPDR S&P 500 Fossil Fuel Reserves Free ETF, which is a basket of companies in the S&P 500 that do not own fossil fuel reserves.
Sustainable ETFs come in many flavors, from ETFs that specialize in solar energy and wind to ones with all-around stellar ESG ratings.
Read more: How Can A Muslim Investor Choose the Right ETF?
Saudi Arabia has similarly stepped up on ESG. The Saudi Green Initiative calls for 50 percent of the kingdom’s energy to be generated by renewables by 2030.
It also aims to plant 10 billion trees, rehabilitate 74 million hectares of land and generally restore the country’s natural greenery. It has pledged to hit net zero emissions by 2060.
When it comes to green megaprojects, Saudi Arabia is a world leader. The country’s Public Investment Fund (PIF) has dedicated vast resources to huge renewable energy initiatives, like Sakaka park, a utility-scale solar energy project.
Similar to the UAE, the kingdom has introduced ESG disclosure guidelines for companies listed on Tadawul, the Saudi exchange.
Other initiatives in the kingdom include a carbon credit scheme, known as the Greenhouse Gas Crediting and Offsetting Mechanism (GCOM). This allows companies to offset their carbon emissions by purchasing credits from projects that reduce greenhouse gas emissions.
Both the UAE and Saudi Arabia have led the Middle East when it comes to sustainable bonds, or debt issuances raised for green projects and other sustainable work.
In 2024 the two countries accounted for more than half of the total issuances in the region, totalling $22.6 billion.
Green bonds (meaning the money is allocated to clean energy projects) take up the lion’s share of issuances,
but other offerings included the GCC’s first-ever social bond, a $600 million bond issued last year by the National Bank of Ras Al Khaimah, with the proceeds going to support micro, small and medium enterprises.
Disclamer:
This post is for educational purposes only, and does not constitute investment advice or a solicitation to take any financial action. It should not be relied upon when making investment or financing decisions.
