The topic of ESG (environment, social and governance principles) weaved its way through virtually all the sessions at the Future Investment Initiative (FII) conference. 

This was not surprising as the title of the conference was “The Neo- Renaissance,” inspired by the impetus to the economy and culture in 15th and 16th century Florence as the world emerged from the plague – another pandemic with global reach.

The pandemic has changed the world for good. Hence, how one could build better is pivotal. The governor of the Public Investment Fund, Yasir Al-Rumayyan, eloquently pointed out that the pandemic constituted an unprecedented opportunity for fresh thinking.

If we want to make sure that the global economy and the world at large emerge from the crisis in a better place than before, the environment, social equity and governance are surely a good starting point.

ESG has become a buzzword and big business at the same time. Deloitte estimates that, in the US alone, funds invested in this category will treble between now and 2025. By then, 50 percent of professionally managed money in the country is expected to conform with ESG standards. 

Looking at the growth trajectory of that investment class, it would not be a surprise if even a bigger percentage of all assets under management would be expected to conform to ESG principles by then.

In the US, the incoming administration of President Joe Biden has lost no time in working on the environmental agenda by re-joining the Paris Agreement on climate change and a whole raft of other measures. We should expect COP26, when the signatories of the Paris accord meet in Glasgow this November, to set more ambitious goals.

On an intellectual level, everyone can agree to lofty ESG goals. At the practical level, it is important to look at this new investment class through the prism of reality, which is precisely where the FII conference delivered.

Net-zero goals are important if we are to save the planet. They need to be triangulated, though, with the need to lift close to a billion people in the third world out of energy poverty. Affordability is an important factor for developing economies. The CEO of Total, a corporation by now defining itself as an energy company rather than an oil company, made an excellent point when he highlighted the role of natural gas in energy transition.

The FII conference was refreshing in as much as it went beyond stipulating the home truth that investments need to be more sustainable from an environmental, social and governance perspective if we are serious about building a better world.

Cornelia Meyer

Energy demand will grow alongside a growing world population, which means that fossil fuels will remain an important part of the energy mix for years to come. This necessitates that, rather than being dogmatic about eliminating hydrocarbons, the world has to become smart about how to mitigate their CO2 emissions.

Saudi Energy Minister Prince Abdulaziz bin Salman brought that message home when he stressed the important role of the circular carbon economy and Saudi Arabia’s carbon sustainability program. 

Indeed, the Kingdom is poised to become a leader in green energy just as it has traditionally been one in oil and gas. The renewables program under Saudi Vision 2030 and the use of advanced technologies to produce blue and green hydrogen are just two examples to prove that case.

As with everything, lofty ambitions and visions are great, but execution is where the rubber meets the road. It was, therefore, not surprising that over the last two days a lot of emphasis was placed on how to measure the impact of ESG compatible investments.

There is currently no unified set of metrics, and the time horizon for measuring the efficacy of ESG goals is much longer than the current quarter-to-quarter approach that publicly quoted companies adhere to when it comes to financial performance.

Various organisations like the UN, the World Economic Forum, the Organisation for Economic Co-operation and Development and the International Financial Reporting Standards Foundation are all working toward developing a universal set of metrics. 

This has so far been a goal and we have collectively embarked on the journey of getting there, which is no easy task. Al-Rumayyan had a point when he said that, particularly on the S (social) dimension, there was still ground to be covered. New technologies and digitization drive forward the quest for measuring the ESG impact of investments, which inspired hope on Thursday.

All in all, the FII conference was refreshing in as much as it went beyond stipulating the home truth that investments need to be more sustainable from an environmental, social and governance perspective if we are serious about building a better world while we emerge from the pandemic.

Where the last two days really contributed to the debate was that they were anchored in reality and highlighted the areas where the debate could be improved – a welcome dose of realism. If we are serious about building better, we need to have the right ESG values and, at the same time, be realistic in what it takes to achieve them.

  • Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources. Twitter: @MeyerResources