ESG: An investment guideline tool for sustainable economies

Earlier this year, when I was approached by Sri Nadarajah, CEO of Venus Healthcare Co., to consider an advisory role for his group’s Al-Ikhlas Care Villages (ICV) project, my initial reaction was positive. 

As an infrastructure healthcare project with a viable feasibility study and promising economic returns, it is also in line with environmental, social, and governance (ESG) guidelines. Like other G20 economies, Saudi Arabia is implementing ESG guidelines as key components of its global investment portfolio.

It is a fact now that ESG investing has taken off, attracting hundreds of billions of dollars, including from the Kingdom’s Public Investment Fund (PIF), into investments that pledge to weigh broader considerations when deciding where to put their money, rather than mere cash returns. 

In addition to oil, gas, renewable energy, and petrochemical sectors, service-based sectors such as healthcare, food processing, tourism, and telecommunications are also involved in ESG.

The ICV project, which is based in another G20 member, Malaysia, is part of the growing global healthcare infrastructure trend, which is estimated to grow to a level of $200 billion in the next five years. Currently, on average, fund managers allocate about 6 percent of their investment portfolios to healthcare infrastructure. This is set to increase to above 9 percent by 2023, which will be driven by both current investors and those who are yet to allocate healthcare infrastructure assets in their portfolios.

It is worth noting that companies that put ESG at the center of their corporate practices tended to show better resilience than others during the peak of the pandemic last year, were able to generate greater value for shareholders, and displayed long-term growth prospects.

The low level of participation, especially by emerging markets, in the development of ESG frameworks is negatively affecting global sustainability.

Basil M.K. Al-Ghalayini

It is widely believed by government officials and business leaders that the implementation of ESG guidelines will play an important role in the economic recovery from the pandemic. In the Kingdom, Almarai Co., the largest integrated dairy company, ranked first among Saudi companies in ESG Invest for the year 2019. This classification was prepared to rank companies’ performance on the Tadawul Index, which includes 181 Saudi companies, to measure a company’s ability to withstand long-term ESG risks.

In my opinion, much remains to be done by the G20 economies, including Saudi Arabia and Malaysia, to ensure we use ESG to its full potential. 

The low level of participation, especially by emerging markets, in the development of ESG frameworks is negatively affecting global sustainability. Having said that, the initiative of the ICV as a healthcare infrastructure project in Malaysia is a promising trend. We, as investment bankers and financial advisors, need to push ourselves to think beyond ESG as a risk management tool and deploy it to create sustainable economies for our future generations.

• Basil M.K. Al-Ghalayini is the chairman and CEO of BMG Financial Group.