Refinitiv Financial Solutions and the Arab Federation of Exchanges (AFE) launched, on Monday, the Refinitiv AFE Low Carbon Select Index for equities traded in the Middle East and North Africa (MENA) region.
Environmental, Social and Governance (ESG) data and analytics is fast becoming of critical importance for financial markets in the MENA region. The new index acts as an ESG benchmark, offering investors the opportunity to commit capital to companies that actively promote and invest in low carbon activities across their business operations in the MENA region.
Saudi Arabia holds the largest weight on the Index by country at 39.5%, followed by Kuwait (22.3%), the UAE (16.6%), Qatar (13.4%), Egypt (4.5%), and other MENA markets (3.8%).
Over a five-year period, the annualised return of the Refinitiv AFE Low Carbon Select Index earned 5.1%, outperforming the Refinitiv free float Index for eight MENA markets that recorded 3% over the same period. The annual return for the Refinitiv AFE Low Carbon Select index for 2019 stood at 19.75%, compared to the Refinitiv MENA Index which earned 12.52% for the same year.
The historic data points illustrate the promising prospects of the region’s transition to sustainable finance. It demonstrates that incorporating ESG into an investment approach can enhance returns and reduce risk across MENA markets.
Over the past few years, regional regulators have been actively promoting investing in sustainable products. Companies present in the MENA region are also embracing ESG concepts as a means of attracting investment and raising financial returns.
With more sustainable products now available in the region, local investors will be able to invest in their own markets as opposed to considering other global markets that meet the ESG criteria.
Rami El-Dokany, Secretary General at the AFE, said, “We are delighted to partner with Refinitiv, a provider of one of the most comprehensive ESG databases in the industry, with the launch of this index set to pave the way for the creation of investible products in MENA including Equity Traded Funds.”
“The Index will also contribute to attract asset managers and investment into MENA markets,” he added, “Our objective is to promote smarter products and companies from the region in global markets.”
El-Dokany also said that during the novel coronavirus (COVID-19) pandemic, the regional ESG portfolio showed a promising potential for Arab companies that are looking at consolidating their positions in this area globally.
Mohamed Farid Saleh, Chairperson of AFE and Executive Chairperson at the Egyptian Exchange (EGX), said, “The index will pave the way for further integration amongst Arab markets. The project is an outcome of the collective efforts led by the AFE members to endorse and roll out ESG practices, principles and disclosures.”
He also said that ESG compliance will continue to drive sustainable performance for corporates, whilst contributing to the regional economic growth trajectory.
Nadim Najjar, Managing Director at Refinitiv for the Middle East and Africa (MEA), said, “ESG metrics are now critical in portfolio analysis, equity research, screening or quantitative analysis across MENA markets. The new index will offer investors the possibility to benchmark ESG datasets in the region and integrate them into their applications for in-depth analysis.”
“The index will help us look at ESG as an asset class that needs to be prioritized as a value and as a practice in MENA markets,” he added, “Investor relations programmes are lagging in this part of the world, and this new index will further help with the integration of MENA markets.”
Najjar said that Refinitiv ESG databases cover over 70% of the global market cap, across more than 450 different ESG metrics, with history going back to 2002.
With local language expertise and operating from different locations across the globe, Refinitiv processes numerous publicly available information sources, to provide up-to-date, objective and comprehensive ESG coverage.
Shirley Barrow, Head of Indices & Benchmarks at Refinitiv, said that through the launch of this index, companies with an environmental focus on reducing carbon emissions are recognised. It also provides the market with a new solution for sustainable investing.