Middle East wealth funds wary of greenwashing

Reuters/Mohammed Salem

• 71% of Gulf wealth funds invest in renewable energy, says Invesco
• Some funds taking a ‘proactive stance’ to combat risks to reputation
• $150 trillion in investments needed by 2050 to hit Paris climate target

Almost three-quarters of sovereign wealth funds in the Middle East are investing in renewable energy, although most have concerns about potential greenwashing.

The latest Invesco Global Sovereign Asset Management Study found that 71 percent of Middle East sovereign wealth funds were investing in renewables.

Many funds are doing so as part of a commitment to environmental, social and governance (ESG) investing.

However, 94 percent of the Gulf sovereigns surveyed said they were concerned about greenwashing – when a company gives false or misleading information about the environmental impact of its products or operations.

To combat greenwashing and the associated reputational risks, “some sovereigns are adopting a proactive stance with ESG,” said Josette Rizk, head of Middle East and Africa at Invesco.

“They are embracing development risk, issuing green bonds themselves to ensure that whatever the ESG framework is, it’s as genuine as possible.”

The report is based on the views of 142 chief investment officers, heads of asset classes and senior portfolio strategists at 85 wealth funds and 57 central banks, who together manage $21 trillion in assets.

More than half of them believe sovereign investors can substantially contribute to the energy transition.

“Geopolitical fluctuations and the urgent issue of climate change have underscored the necessity for secure and sustainable energy supply chains, thus amplifying the importance of renewables in investment strategies,” Rizk added.

According to the International Renewable Energy Agency’s World Energy Transition Outlook, $150 trillion in cumulative investments will be required by 2050 to scale up renewable power generation, electrify end-use sectors and deploy the technologies required to meet the 1.5C target of the Paris Agreement.

In the Middle East, 57 percent of central banks and a quarter of sovereign wealth funds are focusing on direct green infrastructure investments and green bond allocations, Invesco said.