Vishal Kumar is an Analyst at Canbury, with expertise in TCFD reporting and scenario analysis. He has achieved Distinctions in both the MSc Climate Change Finance and Investment at the University of Edinburgh and BA Jurisprudence at the University of Oxford. His professional experience spans geographies, including work with the Centre for International Environmental Law in Geneva and Monitor Deloitte in Dubai.

With COPs in Sharm-El-Sheikh, Dubai, and this year, Baku, attention to climate change is growing in the Middle East; quickly following, is attention to responsible investment. The Middle East could arguably be seen as an unlikely home for responsible investment as a region known for its fossil fuel production. However, Middle Eastern governments have quickly and comprehensively made large strides to advance responsible investment, launching a number of green and sustainable finance initiatives – and typical for the region, the initiatives are well-resourced, government-backed, and with senior participation.

I grew up in the Middle East – I went to school here and got my first job here. Just a few years back, “RI”, “ESG” and “Net Zero” were not asset manager parlance. Today; increasingly so. But while the initiatives have put climate change on asset managers’ agendas, implementation is still underway, and for some, not yet started. This can be attributed in part to the fact that GCC asset managers are not regulated on climate change or ESG disclosure.

Progress, however, need not follow US or European models where industry consideration of ESG issues followed on from lengthy sustainability standard drafting processes required. Unconstrained by US politics or lengthy European policymaking processes, Middle Eastern asset managers have an opportunity to cherry-pick good practice. Here, I highlight some of the opportunities I see in the region and how we at Canbury can help cement lessons learned in other parts of the world.

1. Incorporating “ESG intangibles” in company valuations.

   To understand how changing company practice affects valuations, we at Canbury refer to the concept of “ESG intangibles”. Traditional ESG data sets are already priced into markets; but ESG scoring mechanisms tend to be backward looking, too often inaccurate, and based on stale data. The alpha opportunity is in understanding how companies are responding to new emissions standards, changing consumer behaviours, commodity traceability requirements, as well as changing weather patterns, such as increased wildfires, irregular rainfall or soil degradation. This understanding then drives an analysis for how well the company will perform in a number of different climate scenarios. Asset managers that can best incorporate these considerations in investment decision-making will undoubtedly be ahead of the curve.

2. Activating access to global markets.

   Asset managers in the Middle East are not, on the whole, subject to regulatory ESG disclosure requirements, but are under increasing pressure to align with international frameworks, such as ISSB S2, or for funds listed in Europe, SFDR. Here, the value opportunity is to put in place processes that allow Middle East asset managers to meet international reporting expectations, while ensuring the disclosures are decision-useful and contribute to the investment thesis. As sustainable investment products increase in popularity globally, Middle Eastern asset managers can remain poised to take advantage of this opportunity.

3.  Focusing on outcomes.

   For 400 years, financial regulation has tended to focus on financial processes, rather than the real economy outcomes of financial decision-making. That was true of ESG regulation too – until recently. Regulators – and clients – increasingly expect a look through to the outcome of the decision – be that real economy decarbonisation, roll-out of renewables, or addressing environmental degradation. Middle East asset managers can incorporate this look-through in their climate change and ESG strategies, highlighting and engaging with companies to ensure real-economy impact.

4. Capitalising on emerging technologies.

   At Canbury, we’ve built a suite of tools using open-source AI technologies (Claude, Perplexity, Gemini, GPT, etc) to enable climate reporting, nature reporting, and bespoke analysis for clients. Our tools have been used to map the nature risks in supply chains and understand the use of proceeds of green bonds. Middle East managers can use new technologies to their advantage – building new systems based on the best available tools.

In the run up to COP 29, Middle Eastern asset managers will once again be in the spotlight. As we started to see in Dubai, Middle Eastern asset managers have an opportunity to be at the forefront of responsible investment; providing high quality, thoughtful, and sustainable asset management.

At Canbury, we have the expertise and tools to help you get there. Get in touch at info@canbury.io or with me personally at vishal.kumar@canbury.io