CDF Tadawul culture-focused ESG partnership for a win-win situation

On Feb. 15, Saudi Arabia’s Cultural Development Fund (CDF) launched a partnership with the country’s stock exchange, Tadawul, to provide a channel through which Saudi companies can connect with, and invest in cultural and heritage projects.

The initiative is part of a comprehensive push by the Saudi government to promote robust compliance with international and local ESG (environment, social, and governance) standards.

The alliance was originally proposed by the Ministry of Culture’s Cultural Development Fund, or CDF, whose mission is to identify, promote and invest in Saudi initiatives with significant cultural and social value. 

It is a win-win-win: Participating Tadawul companies will deepen their verifiable social and environmental commitments with relative ease while expanding access to international markets, through better ESG scores. CDF-vetted projects will benefit from an infusion of private sector funding and industry expertise. Saudi Arabia and its citizens will benefit from the tangible and intangible returns of the projects themselves, greater integration of the public and private sectors, and better overall economic performance demonstrated through Tadawul’s performance, capitalization and visibility in global markets.

The CFD is responsible for creating a pipeline of projects chosen for their educational value, job-creation potential, community benefits, alignment with Saudi Arabia’s development priorities, and other factors. It will work with its clients to construct investment proposals that match the ESG-related needs of Tadawul-listed investors. For example, an airline might be matched with a visible restoration project at one of the country’s newly developed heritage sites; a high- end hotel chain with a cooperative making distinctive traditional furniture, and so forth.

Often companies are predisposed to see the benefits of such alliances (branding and reputation, employee retention, marketing, etc.) but lack the time, connections or the expertise in structuring relationships so that they have the best chance to perform.  The CDF-Tadawul alliance will make this process infinitely easier, while helping position the Saudi private sector as a leading agent of cultural transformation.

The alliance inevitably supports Tadawul’s soon-to-be-launched ESG index, developed with international rating platform MSCI. The purpose of the index is to highlight Saudi companies that are not only ESG-compliant but have distinguished themselves among their global peers in their ability to find creative and responsible ways to minimize their environmental footprint and maximize social value. 

With the Tadawul alliance, the CDF fortifies efforts by other Saudi government entities, notably the Ministry of Economy and Planning, to boost ESG compliance across the public and private sectors.  It is truly a cross-sector, multi-directional push that supports the cultural ecosystem and creates a more bankable private sector.

Saudi Arabia’s focus on ESG is squarely in line with a remarkable global shift toward the application of ESG principles and standards, driven by consumers’ rising concerns over the effects of climate change, and rapid environmental degradation.

Stakeholders are demanding corporate action and responsibility, not as an afterthought or a nice-to-have, but a core element of the way they do business. And thus, for the first time we are seeing ESG factors built directly into companies’ valuation — a development that contradicts the dictum, famously attributed to economist Milton Friedman, that the firm’s sole function is profit maximization. This systemic shift is reflected in that “ESG assets are on track to exceed … a third of the $140.5 trillion in projected total assets under management,” according to Bloomberg Intelligence.

While the Tadawul CDF alliance is an innovation, it is worth noting that it is not fully novel when considered in the Saudi context. Since its founding, Saudi Arabia has been a leader in capital market development, financial services, trade, infrastructure services, etc. Concern for societal well-being is built into our Islamic heritage and culture.

The fact that Saudi Arabia is leading the push on ESG compliance should be a source of great pride for the country as well as a sign that the country is well in line to fulfill its commitments as laid out in Vision 2030 and its Financial Sector Development program. ESG adoption is itself an indicator of adaptability, and adaptability and resilience are, as the events of the last two years have so starkly shown, essential for not only national prosperity but the health of the international community. 

One of the noticeable elements of the CDF-Tadawul ESG alliance, of course, is its focus on advancing and promoting Saudi culture.

Of all the components of ESG, culture is often the most overlooked, in part because its impact is even less quantifiable than say carbon emissions reduction or governance standards.

So why has Saudi Arabia made investment in culture such a priority, and a flagship component of its push for wide-scale ESG compliance?

Because culture is like invisible glue; it is part of the intellectual and spiritual capital of a society. It promotes cohesion, a shared sense of value and purpose, and also makes the world a richer place. In the context of tourism, culture is a source of livelihood and foreign exchange earnings, and the basis for its push to open up its heritage traditions and historical sites to the outside world, in a way that enriches everyone.

In a virtual world, culture is an anchor of a brand and an organizing principle as well: A source of motivation, creativity, and equanimity.  It is for these reasons and others that UNESCO refers to culture as the “ultimate renewable resource for humankind and societies.”

• Maria Al-Zahrani is a Saudi investor relations professional.