x Abu Dhabi, UAEMonday 22 January 2018

Big profit, small carbon footprint

A growing number of UAE-based investors agree with Greenpeace that sustainable energy represents a better long-term investment than non-renewable energy sources.

A study from the Global Wind Energy Council says the global wind energy market will resume growth this year. Ken James / Bloomberg
A study from the Global Wind Energy Council says the global wind energy market will resume growth this year. Ken James / Bloomberg
Rama Chakaki is representative of a new breed of ethical investor who feels increasingly obliged to examine a company's social and environmental impacts.

Ms Chakaki, who is originally from Saudi Arabia and has lived in Dubai for the past eight years, runs Baraka Ventures, a small UAE-based private investment holding company.

She is also a private investor in ethical stocks. Having abandoned investing in some traditional stocks, Ms Chakaki now invests in US technology firms, including Akamai Technologies, a company that specialises in streaming media services; Foundry Networks, a networking hardware vendor; and Juniper, a global network infrastructure provider.



. Does the sustainability factor affect the market?


Ms Chakaki believes that a growing number of investors also increasingly have an ethical focus on their investment portfolios.

"I switched to social and ethical investments because of the pressing need in the region for the private sector to take an active role in addressing issues like unemployment, education, water shortage, youth mentorship and development and health," Ms Chakaki says.

"Governments are doing what they can, he said, but the private sector and civil society have to be more proactive. I grew up in this region and I felt a responsibility to act.

"For the past six years, my investments have been solely in the social venture space. I look for opportunities to invest in businesses with a triple bottom line - a business looking at bringing social value, environmental positive or neutral impact and a reasonable financial return."

At the same time, there are growing concerns regarding the long-term non-sustainability of traditional stocks.

The environmental group Greenpeace reports that leading financial institutions are becoming increasingly wary of investing in non-sustainable energy sources.

"We are warning investors that they should be wary of investing in long non-sustainable fuel production," says Charlie Kronick, a senior policy adviser at Greenpeace.

Ms Chakaki agrees, saying more investors are asking questions of their financial advisers and fund managers about the portfolios they are investing in.

"The questions are aimed at gaining a better understanding of the environmental and social practice of companies they invest in," she says.

Financial institutions such as Deutsche Bank and Goldman Sachs are forecasting that global oil consumption will peak from 2018 to 2020 and that today's high oil prices will not always continue.

"Investors and analysts are beginning to understand that fact and investor perceptions are beginning to change," Mr Kronick says.

"As oil companies push into deeper waters to tap into the world's dwindling supply of fossil fuels, there is a danger of more disasters increasing. For example, a big accident in the Arctic could have a similar effect to the Gulf of Mexico. But in the Gulf of Mexico, there were 48,000 workers, 150 aeroplanes and 6,000 ships. The Arctic is not so accessible."

According to Greenpeace, BP, the UK-based oil giant, has committed about US$11 billion (Dh40.3bn) to the mammoth clean-up in the Gulf of Mexico, where more than 4 million barrels of crude spewed into the ocean after a blowout at the company's Macondo exploration well in April last year.

BP, now responsible for the biggest marine environmental disaster in history, has established a $20bn escrow fund to pay compensation claims and damages resulting from the spill.

"These kind of figures could have reverse impact on oil companies' share price and ability to pay dividends. In one night, BP's share value halved and its dividend went away," says Mr Kronick.

By contrast, the market for clean energies is continuing to grow as the wind power industry recovers from the global economic downturn. A study from the Global Wind Energy Council says the global wind energy market will resume growth this year.

"Global capacity would more than double by 2015 from the end of 2010, based on expected growth of 28 per cent," according to the study, titled the Global Wind Report - Annual Market Update 2010.

"Last year was a tough year for the industry, but 2011 is looking up," adds Steve Sawyer, the general secretary of the Global Wind Energy Council.

Adam Sieminski, the chief energy economist at Deutsche Bank, believes that more recent disasters, notably that at the Fukushima nuclear reactor in Japan, are now also focusing growing investor attention on clean-energy investment.

"In general, I believe that the Macondo spill reaction has focused more on the question of how to improve drilling safety and improve operating procedures in oil developments," he says.

"It seems to me that the nuclear disaster in Japan, however, is likely to lead to a greater focus on alternative energy to replace some nuclear facilities [similar to the Fukushima-type reactors] that around the world might be subject to earthquakes or flooding."

But a growing number of UAE-based investors also agree with Greenpeace's view that sustainable energy represents a far better long-term investment that non-renewable energy sources.

Robbie Vitrano is an investor and entrepreneur who is opening a restaurant chain in the Middle East called N_K_D Pizza, which offers the innovative concept of health-food pizzas. Six of those restaurants will be in the UAE, including one that has already opened in Dubai Marina.

Mr Vitrano previously launched a socially responsible fund, the Trumpet Group, after Hurricane Katrina, which devastated New Orleans in 2005.

According to Mr Vitrano, investors are now starting to grasp the benefits of investing in socially responsible projects.

"In general, investors and the market are rewarding companies that are more authentically connected to the communities they serve and transact with.

"Not only is it possible to make a profit on ethical investment as compared to investing in more traditional sectors, it is now a distinct market advantage."

Large institutions are taking ethical investment increasingly seriously. Deutsche Bank is particularly focused on the Middle East investment market. Two years ago, the company launched an investment platform called Al Mi'yar, Arabic for "the standard". It was developed with the Luxembourg Financial Group and is in Europe.

Al Mi'Yar is aimed at facilitating the issuance of Sharia-compliant securities and is designed to "revolutionise the issuance of securities in an Islamic manner".

But big players such as Deutsche Bank increasingly face competition from renewable-energy investments targeted at the ordinary investor. One example is the European investment vehicle Polaris Energy, which was established last year. The company was formed with the idea of creating a vehicle for ordinary investors to have direct ownership in projects with sustainable business models. Investors, who must meet certain qualifications, become limited partners in renewables projects.

Regions such as the Middle East, which has a climate suited to solar-energy production, are also seeing the launch of new alternative-energy investment vehicles.

"Social investments are on the rise," says Mr Chakaki. "Social- investment funds are opening shop in the UAE and attracting interest from investors that are interested in long-term investments, with reasonable returns, as well as a high social and environmental impact. These funds are attractive to investors who are willing to wait 10-plus years to see a return on their investments."

Solar Millennium is an example of a green investment vehicle now focusing on attracting investors to sustainable-energy development in North Africa and the Middle East. Its projects include a solar-thermal power plant in Morocco, while a similar plant is about to start operations at Kuraymat, Egypt, with the solar technology for the project provided by Flagsol, a subsidiary of Solar Millennium.

Some green investment funds are already overtaking more traditional investment vehicles. At its launch just over a year ago, the Nikko AM World Bank Green Fund was the first to invest 100 per cent of its portfolio in green bonds issued by the International Bank for Reconstruction and Development.

In its first year, the fund, based in Luxembourg, has returned 11.6 per cent, beating the benchmark return - based on 50 per cent Citigroup World Government Bond Index and 50 per cent JP Morgan Government Bond Index (Emerging Markets) - of 9.68 per cent.

The fund is open to institutional investors in the Middle East, including financial groups, pension funds, sovereign wealth funds, banks and wealth managers. Since its launch, it has raised more than $650 million from investors in the Middle East and Europe. The money is used to help tackle the causes and consequences of climate change in the developing world.

However, Greenpeace says many of today's ethical-investment funds are merely window dressing for financial institutions that still invest heavily in unsustainable fossil-fuel production.

"Most big funds have social-responsibility officers and there might be a small ethical-investment fund," says Mr Kronick. "Much of today's socially responsible investment is in the form of window dressing. Only about 3 per cent of investment could truly be termed socially responsible investment.

"This is not insignificant and represents a lot of money. But it is not enough to make a real impact on the environment."

The situation could be set to change dramatically as both institutional and private investors across the world begin fully to grasp the long-term non-sustainability of non-renewable energy sources and see the profits that can be made via green investment.

"Time will tell whether this is a sound investment strategy," says Ms Chakaki. "In the meantime, I feel I'm investing in a manner that is in line with my moral code."