The Qatar Stock Exchange (QSE) is developing a sustainability benchmark index for the listed companies as the country has promising potential to be a niche ESG (environment social governance) market in the region.
"We are working with market participants to develop a sustainability and ESG benchmark index for the QSE listed companies," according to Mohsin Mujtaba, director (Product and Market Development), the QSE.
This comes in the backdrop of countries such as Luxembourg, Malaysia and Singapore with mature capital markets having introduced roadmaps to establish their markets as sustainable investment hubs.
The Luxembourg Stock Exchange already has green exchange (LGX) — a dedicated platform for green, social and sustainable securities. It serves as a sustainable finance platform, which restricts listings to issuers and asset managers that provide full disclosure and fulfill their reporting obligations to ensure maximum transparency.
A joint report by the Qatar Financial Center (QFC) and Refinitiv found that the sustainable or ESG investment is burgeoning, with a market valued at $30.7tn in 2018 and expected to surge in years ahead.
"The $31tn sustainable/ ESG investment market presents Qatar with an opportunity to establish a niche market in the region," it said.
Despite this growth, sustainable investments remain a niche segment in the Gulf Cooperation Council and the Middle East and North Africa regions, "offering Qatar a prime opportunity to establish itself as a destination for sustainable investments, which would attract both issuers and investors to its capital markets," it said.
The mandatory ESG reporting requirement for listed companies in Qatar serves as a stepping stone towards this objective, the report said.
Capitalising on the mandatory ESG reporting for the listed companies and the burgeoning Islamic fund market, it said, Qatar stands ready to serve evolving investor preferences and their appetite for emerging market investments.
With strong Shariah-compliant players in Qatar’s funds market, it would be less challenging for the market to shift towards a sustainable or ESG mandate for mutual funds and exchange traded funds.
Finding that investors worldwide are increasingly incorporating sustainability factors into their investment decisions, the QSE is convinced that companies that effectively communicate their sustainability strategies will improve their capital raising abilities and have an overall competitive advantage.
The QSE-listed stocks became a more attractive proposition for foreign investors following the introduction of responsible investment mandates, with ESG reporting soon becoming mandatory for all listings, the QFC report said.
However, the concept is not new, with ESG reporting having been carried out since 2016 on a purely voluntary basis.
"The QSE-listed companies will now be required to report their ESG metrics through the QSE sustainability and ESG platform, which was launched in 2018 to uphold the exchange’s commitment to the Sustainable Exchanges Initiative (SEI)," it said.
Three listed Qatari corporates - Ooredoo, Doha Bank and QNB - have already begun their ESG rating processes with others soon to follow, it added.
"The demand for sustainable investment opportunities is growing as investors’ preferences are shifting towards more socially-responsible investment solutions," it said.
The report said sustainability is also becoming increasingly important as a criterion for government investment decisions and as regulatory concerns for financial markets and institutions.