Abu Dhabi and Amman – Pension funds in the Arab Region have begun to take steps towards integrating environmental, social, governance (ESG) and sustainable development issues into investment decisions, finds a new report by the Arab Monetary Fund (AMF) and the United Nations Development Programme (UNDP), however much more progress needs to be made if pensions funds are to achieve their potential to support the attainment of the Sustainable Development Goals (SDGs).

The report, launched last week, is the first comprehensive survey of how pension funds in the Arab region report to have aligned with ESG frameworks and the SDGs. It comes as result of a collaboration between the AMF and UNDP, to support the countries of the Arab region to achieve sustainable development objectives. It also benefited from extensive consultation with Ministries of Finance and pension funds across the region.

The report measures the maturity of the ESG integration journey of Arab pension funds, and the potential for greater alignment between their fiduciary duty of prioritising financial returns and minimising risk and the growing interest in incorporating ESG factors into their investment management decisions, with growing evidence that such management protects the long-term value of assets.

Analysing surveys completed by pension funds across the Arab Region, the report shows that alignment is overall at a nascent state although characterized by high heterogeneity, with many funds having taken important steps to align their investments with ESG principles but with others at the very start of the journey. Using a scale reflecting the degree of alignment of ESG in investment decisions as reported in the survey, the report shows that most of the surveyed funds state to have familiarity with ESG factors and the SDGs, while fewer funds report to have advanced towards deeper levels of ESG alignment.

Looking ahead, the report finds that funds seeking to increase alignment with ESG principles hold that access to peer networks and case studies could be combined with expert advisory services to enable pension funds to advance their own approaches to alignment.

On the basis of the survey findings and the global and regional context, the report sets out a range of recommendations focusing on steps that can be taken by governments and regulators, pension funds, global and regional organizations and pension fund advisors to deepen the integration of ESG factors and more closely link them to the SDGs in the Arab region. They include, among others, the adoption of internationally recognized reporting standards, revision of national regulations, development of internal capacity to adopt standards and enhance internal impact management systems, improvement of transparency and disclosure, participation in regional peer networks, harmonization of relevant metrics and indices.

“Sustainable development and ESG are becoming more important in the policy agenda of the Arab Region and are of increasing significance to all stakeholders. Building on the outcomes of this report and given rising interests from policy makers, Arab pension funds industry will see more development of ESG/SDG alignment in the coming future to channel investments into assets with high ESG value. In this regard, we are keen at the Arab Monetary Fund to promote financing and investment policies that supports the transition to a sustainable economy and helps to build a thriving, resilient future for society and businesses” said Dr. Abdulrahman bin Abdallah Al Hamidy, Director General Chairman of the Board of the Arab Monetary Fund

“Despite important progress by some funds, if Arab pensions funds are to fully play their part in achieving the SDGs while delivering their core mission to their members, there is a need to move beyond the current initial focus on ESG issues, and towards a stronger alignment with ESG principles across a breadth of investment decisions,” said Dr. Khalida Bouzar, Director of the UNDP Regional Bureau for Arab States and Assistant Secretary General of the UN. “UNDP will continue to support Arab funds and countries to make progress on this important agenda.”

The AMF and UNDP stand ready to continue to bring their expertise together to support further efforts in addressing pension funds’ ESG-related challenges in the region and to develop country specific reform roadmaps in cooperation with national authorities to promote greater alignment of investments for SDGs achievements. An electronic version of the report is available on www.amf.org.ae; and www.undp.org.

Contact Information:

UNDP New York | Theodore Murphy | theodore.murphy@undp.org