Saudi Arabia's PIF focuses on ESG as it grows its $450bn portfolio

Update Saudi Arabia's PIF focuses on ESG as it grows its $450bn portfolio
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Updated 08 November 2021

Saudi Arabia's PIF focuses on ESG as it grows its $450bn portfolio

Saudi Arabia's PIF focuses on ESG as it grows its $450bn portfolio

JEDDAH/DUBAI: Saudi Arabia’s Public Investment Fund (PIF) — which targets a total of $1 trillion of investments by 2025 — takes ESG principles into consideration to enlarge its current assets under management portfolio of $450 billion, as the Kingdom’s drive toward ESG investment principles progresses. 

Earlier this year, the fund announced a plan to add $300 billion to the Kingdom’s non-oil GDP by 2025, including renewable energy investments. 

Renewable energy, water, electricity, and carbon management projects are some of what the listed companies are engaged in.

According to Moody’s Investors Service, Saudi Arabia’s high negative environmental risk exposure is mostly related to carbon transition as a result of its economic and fiscal dependence on the hydrocarbon sector, which is mitigated in part by very low hydrocarbon production costs. 

The Kingdom is also one of the world’s most arid countries, and rapid economic and population growth in recent decades have increased challenges surrounding water sustainability. 

While most of Saudi Arabia’s water is produced by energy-intensive desalination plants, which are also vulnerable to attacks and oil spills, the Kingdom has access to low-cost energy that mitigates some of this risk.

In its recent report Moody's said that Saudi Arabia's ESG Credit Impact Score is moderately negative (CIS-3), "reflecting highly negative exposure to environmental risks and moderately
high social risks, which are partly contained by institutions and governance strength and economic resilience." 

One the factors of the Kingdom's economic resilience, according to Moody's, is "the availability of financial resources in the form of sovereign wealth fund assets that can be used to absorb shocks."

Due to the rapid growth of the Saudi Capital Market Authority since 2017, it is important for them to implement ESG principles through the Saudi Stock Exchange, Tadawul. 

“Saudi Exchange sits at the center of the economic ambitions that will drive this transformation,” said Mohammad Al-Rumaih, CEO of Saudi Stock Exchange told Argaam, adding that the PIF has incorporated ESG principles into its $400 billion of global investments.

The PIF, committed to ethical investment, however, didn't publicly disclose the size of its ESG-investment portfolio.

It is not just about establishing strength to support finance, but also about facilitating a global economic ecosystem that ensures its security. There have been 50 times more Qualified Foreign Investors (QFI) on the Saudi Exchange than there were in 2017. 

QFIs are foreign individuals, organizations, as well as residents from a country that is a member of the Financial Action Task Force.

Tadawul established six principles for responsible investment in addition to promoting ESG initiatives. These principles can be used to forecast a firm's performance because they provide a broader perspective of the organization.

Hawazen Nassief, vice president ESG and external affairs at National Energy Services Reunited, said the recent issuance of ESG disclosure guidelines by the Tadawul is a major step forward as it demonstrates the importance of ESG within the Saudi capital market. 

“This coincides with other major announcements made at the Saudi Green Initiative Forum that underscore the Kingdom’s commitment — in line with Saudi Vision 2030 — to building sustainable economies and environments, and to playing a leading role in the green transition of the planet,” she told Arab News.

Tadawul’s ESG disclosure guidelines will improve overall market transparency and help listed firms’ long-term success.

“The guidelines will also help companies better align with global best practices and improve standardization and consistency in ESG reporting and disclosure among issuers,” she said. 

“They make it easier for local and international investors to monitor and evaluate the ESG performance of listed companies in the Saudi market.”