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W


elcome to the OPEC Fund Quarterly. Environmental,


social and governance (ESG) issues are at the heart of this edition – and front of mind for advocates of climate action, company CEOs, investors and many others. In a special feature, we examine what


the rapid growth in ESG investments – and the increased scrutiny – means for the international development community. Does the COVID-19 crisis divert the ESG gaze? Or is ESG now even more important than before? Green bond issuance topped US$257 billion in 2019, up 50 percent on the previous year. But the growing markets for these investments are mainly concentrated in advanced economies. “Private finance is still not finding its way into investments in developing countries at the scale and speed needed to achieve the Sustainable Development Goals (SDGs),” says SDGs finance specialist Gail Hurley on pages 8-9. All of our interviewees and


contributors featured on pages 6 to 17 are ESG experts in different capacities, and each brings a different perspective. “Today, the great opportunity for investors is to support emerging market countries who are ready to embrace the transition to a low-carbon economy,” says BNP Paribas’ Felipe Gordillo on page 13. “Investments in key infrastructure supporting low- carbon solutions will be future drivers of growth.” However, Gordillo also warns that the development community and emerging market issuers need to strengthen their capabilities so they are better able to respond to investors’ increasing requests to engage on sustainability issues. Similarly, Dr Alexis Crow,


PricewaterhouseCoopers’ (PwC) lead of geopolitical investing explains that until recently, investing in low- income countries has been associated mainly with impact investing and providing aid. But as global private investors increasingly allocate capital to real assets in developing countries – specifically real estate, infrastructure and private equity – more candid conversations need to take place about the ESG performance of those assets. See pages 14-15 for more.


At this stage, ESG still appears to be in the eye of the beholder. Many people have different ideas about what ESG means. Earlier this year, as reported by the Financial Times newspaper, the US asset management industry’s top regulator warned about the risks of relying on simple ratings when considering ESG issues as part of an investment decision. Jay Clayton, Chairman of the Securities and Exchange Commission, said any analysis that combined separate environmental, social and governance metrics into a single ESG rating would be “imprecise”. More recently (in September), the newspaper reported that the International Organization of Securities Commissions (IOSC) is planning to identify ‘commonalities’ among the vast range of sustainability disclosure standards from across the world in order to make it easier to compare information. There is certainly room for


improvement – whether it be in disclosure standards or, more fundamentally, integrating ESG into decision-making at all levels. Juan E Notaro Fraga, Executive President of FONPLATA Development Bank, acknowledges that there “are examples across the world where overlooked factors or issues have had important unintended effects that often cannot be reversed.” See page 12 to read more about Notaro’s call for the development community to focus on harmonizing the tools used to identify and mitigate the risks that arise from its projects. This is not to say everyone is


scrabbling about in the dark until the IOSC or other regulators act. Our interview with Mary Porter Peschka, from the World Bank Group’s International Finance Corporation (IFC), highlights on pages 10-11 how many have been working in the ESG space for years and have made significant contributions and progress. “At IFC, we’ve identified a critical issue: there is no one acceptable framework for ESG disclosure,” she explains. “To address this, we developed IFC’s Disclosure and Transparency Toolkit that streamlines current reporting frameworks and provides a step-by- step approach on ESG disclosure and transparency for emerging markets.” Peschka says that there is clear


The spiral aloe (pictured left) is a species of flowering plant endemic to the Kingdom of Lesotho. It is the country's national flower. The species is difficult to grow in cultivation; plants that have been removed from their habitat usually do not survive for more than a few years.


recognition that strong ESG standards can help deliver development impact and that the IFC’s ESG standards help address 16 of the 17 SDGs. This issue also carries an exclusive


interview with Islamic Development Bank (IsDB) Group President Dr Bandar M H Hajjar. Dr Hajjar explains how the IsDB’s green Sukuk (bonds) are important for the Bank’s ESG corporate objectives and beneficial in many ways. “These green issuances help drive the Bank’s agenda to support more low carbon, climate resilient, socially responsible projects, as well as having a direct impact on the Bank’s position as an institution of choice for green investors,” he says. See pages 34-37 for much more on this.


T


he OPEC Fund celebrates its 45th anniversary next year.


The organization has been investing in


developing countries since its inception in 1976. In the early years, ESG progress was a result of lessons learned from project follow-ups and reviews. The OPEC Fund is currently strengthening its ESG framework and incorporates ESG considerations into its project pipelines. Furthermore, it hopes to contribute to the understanding and promotion of ESG industry-wide through providing different platforms for debate. This issue of the OPEC Fund Quarterly magazine is a part of this initiative. A resilient and sustainable global


recovery from COVID-19 will need ESG considerations at its core. Going forward, the physical and mental wellbeing of societies will likely depend far more on environmental and social notions, as people the world over demand what they deserve: a safe and secure place to live, equal opportunities, and the freedom to enjoy public spaces and close relations with friends and family. Sound governance – by companies, organizations and governments – is fundamental to this new future.


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