When NASA successfully landed its latest Mars rover mission on the red planet its task is to find signs of habitable conditions in Mars’s ancient past, as well as evidence of water and past microbial life.
Other key objectives are to help the agency prepare for its sample-return mission, improve landing techniques, identify subsurface water, learn more about environmental conditions, and test a technology to produce pure oxygen from Martian carbon dioxide. These objectives piece together to form a grander vision: That of astronauts safely traveling to, living on, and returning from Mars.
What inspires me most about space exploration programs is the visionary thinking of the people behind them – their commitment to engage in ambitious, lengthy projects and the fascination of conquering truly new frontiers.
In finance, we cannot boast of achievements of similar feat and prestige. But perhaps the progress the sustainable investing industry has accomplished in recent years is one area that comes closest to it.
What we now refer to as sustainable finance has some of its foundations in religious groups, among them Muslims who incorporated ethical standards and beliefs in their investment decisions going back centuries ago.
The goal to uphold one’s ethical values and promote social welfare through investment has some origins in Sharia law, and it is also reflected in today’s sustainable finance solutions.
Investing ethically is accomplished by focusing on investments that meet certain ethical standards, just as sustainable investing incorporates environmental, social, and governance considerations into investment process and/or strategy.
Targeting specific social and environmental outcomes through investment, on the other hand, is carried out through impact investing, which involves investors actively seeking to identify and address sustainable challenges in areas such as climate change, income inequality, and healthcare. UBS expects impact investing to become the next wave of growth in sustainable finance.
These trends also increasingly affect Middle East countries. Since the first green bond was issued in 2016 in the UAE, more and more countries have launched such initiatives. This is a reflection of global and local investors paying greater attention to the social and environmental returns of their investments, besides the economic returns of their investment.
But equally important, it also shows that governments across the region are moving forward with their sustainable agendas. In Saudi, Vision 2030 also shows the kingdom’s path to a more sustainable future, for example through flagship projects like NEOM or the Red Sea Development.
Another parallel between Islamic investing and sustainable finance is that they are currently among the fastest growing and most rapidly evolving areas of finance. Global Islamic financial assets have grown at a double-digit pace, reaching approximately $3 trillion in 2020 according to The Islamic Development Bank (IDB). Global ESG assets were estimated at $31 trillion in 2018 by the Global Sustainable Investment Alliance (GSIA) and are expected to grow roughly 15 percent p.a. to reach about $53 trillion by the end of 2025 according to a Bloomberg Intelligence report published in Feb 2021. This has significantly expanded the pool of targeted, diversified, and liquid investment vehicles through which investors can efficiently incorporate social and environmental considerations in their portfolios.
For this reason, sustainable finance could be seen as a viable option for some Sharia investors looking for exposure in areas where they cannot express their beliefs due to a lack of eligible products; by the same token, some Sharia investments may be an interesting opportunity for sustainable investors who wish to build exposure to markets in the Middle East, as an example.
And similar to space exploration, this journey is far from over. In a recent white paper Sustainable Finance – Top Trends of 2021, UBS dived into 10 distinct trends that will, in our view, crucially shape this endeavor. These trends revolve around topics such as our transition toward a low-carbon economy, the need for sustainable and inclusive growth, and the need for close collaboration, transparency, and high-quality data to achieve these goals.
These trends already manifest in NASA’s Mars 2020 mission. Perseverance and Ingenuity, the two vehicles that successfully landed on the red planet in February, don’t rely on fossil fuels to explore its terrain, although they required the Atlas V rocket to be catapulted out of Earth’s gravitational orbit. Both rovers are powered by solar energy stored in batteries. While electric cars have become quite common in recent years, we believe electric transportation can be almost entirely decarbonized by 2040.
Technological innovation has enabled, and will continue to enable, new innovation at likely declining costs, and saving energy will become a “feel good by doing good” factor attached to it. Embedding sustainable investment solutions into your portfolio therefore also means that you could gain exposure to technological innovation – one of the key drivers of investment returns in the decade ahead, in our view.
Another, probably lesser-known fact is that Mars 2020 is only one of three space missions launched in the summer of 2020. The UAE’s Emirates Mars Mission, with its Hope spacecraft sent to study weather conditions, reached the red planet on 9 February. The day after, China’s Tianwen-1 entered Mars’s orbit, with a landing foreseen in May or June.
Again, these accomplishments have important parallels to sustainable investing: It has become a truly international phenomenon. We see rising investor interest not only across the planet, but also across investor segments. Sustainable and impact investing are probably the only field in finance that truly interlink all generations within the family, in the UAE as much as anywhere else. In our view, this is likely because the underlying challenges that will shape future developments are global in nature. Climate change, technological innovation, and the need for better data and transparency go beyond national borders. As such, we believe the best way to gain exposure to sustainable investments in through a globally diversified approach.
Perseverance will ultimately pay off in your retirement years and the legacy you wish to leave behind. But we also encourage you to use your ingenuity to think about how best to position your portfolio for future investment trends.
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