Ahead of COP28 being held in the United Arab Emirates (UAE) this year, from 30 November to 12 December, the spotlight is on sustainability in the Gulf, with Dubai International Financial Centre (DIFC) providing access to resources for family offices looking to make sustainable investments.
Family owned businesses are a vital part of the UAE’s economy – comprising 60% of gross domestic product (GDP) and employing 80% of the workforce – according to KPMG, a global network of professional services companies. In 2021, family wealth grew by 20% in the Middle East compared with 11% globally, global media company Forbes reported.
With sustainability making its way to the core of all business operations, family offices are integrating environmental, social and governance (ESG) matters into their investment strategies.
Rising environmental concerns and the need to create a more equal society have prompted an increased focus on sustainable investments – and more than half (56%) of family offices are already doing this – according to a survey by investment banking firm UBS.
The respondents give varying reasons for prioritising sustainable investments.
Almost two-thirds (62%) say that they feel a sense of responsibility to make a positive impact on the society. Meanwhile, 55% think that it is the right thing to do for the society and 49% view it as the main way to invest in the future.
It is clear that family offices are prioritising incorporating sustainability into their operating models and they can lead the way in integrating ESG matters into their investment strategies.
Sustainable investment guide
DIFC is the leading global financial hub in the Middle East, Africa and South Asia (MEASA) region, which is made up of 72 countries with a population of around three billion and a nominal GDP of $8trn. With almost 20 years’ experience of facilitating trade and investment in the region, DIFC connects these growing markets with those in Asia, Europe and the Americas through Dubai.
The DIFC-chaired Dubai Sustainable Finance Working Group (DSFWG), launched in July 2019, coordinates efforts to create the most sustainable financial hub in the region. Since its establishment, the group has been integrating ESG best practice across Dubai’s finance sector and has created a Sustainable Investing Guide, which is available to investors across asset classes.
Family offices, whether located in DIFC or beyond, can use the guide to gain valuable insights and use it to steer their investment decisions. There are several options available to investors. The first is negative screening, which involves excluding certain sectors such as weapons, gambling or tobacco from a fund portfolio. This is the primary strategy employed globally. Secondly, investors can use the reverse tactic of positive screening, which consists of investing in companies that are leaders in ESG performance compared with their peers in a specific industry or category.
The third is to integrate ESG risk and opportunity analysis into the financial analysis of an investment. Fourth, investors can restrict their investment options to companies that meet international standards such as the Universal Declaration of Human Rights, the Kyoto Protocol and the International Labour Organization. Another way to guide investment decisions is to focus on specific ESG themes such as renewable energy, water management, sustainable agriculture or gender diversity, according to the DSFWG guide.
DIFC support for family offices
The number of family offices in Dubai is growing rapidly, and those wealthy families are turning to DIFC as a safe hub to manage their wealth. The UAE Ministry of Economy’s data shows that up to 90% of private companies in the UAE are family owned businesses, and at the outset we mentioned that they contribute approximately 60% of the nation’s GDP.
Recognising the already massive contribution, and wanting to grow this further, the UAE government launched a new initiative in 2022 that aims to double family owned businesses’ contribution to the country’s GDP to $320bn by 2032.
Additionally, DIFC continues to roll out more resources and support mechanisms to cater to a broad array of institutions that family offices can benefit from. The Centre has set up the DIFC Family Wealth Centre, which can rate and certify a business in terms of governance, family succession planning and global impact. There is also the opportunity to network with other members, and access events and discussion forums.
The new DIFC Family Wealth Centre and Family Arrangements Regulations 2023 cater to family offices, offering tailored services and support for preserving legacies across generations and geographies. The DIFC Family Wealth Centre provides a world-first in the end-to-end service requirements of family businesses with innovative solutions for families with a long-term vision and global ambitions.
Furthermore, DSFWG has launched its Net Zero Guide for UAE Companies, which aims to provide local businesses with knowledge, practical advice and frameworks for companies beginning their journey to net zero.
Find out more about DIFC’s Corporate Structures here.