In recent years, there has been a growing emphasis on environmental, social, and governance (ESG) investing as individuals and organizations recognize the importance of prioritizing investments that have a positive impact on society and the world. As a result, the asset management industry has undergone a paradigm shift, and wealth management professionals need to adapt and position themselves for this changing landscape. Similarly, jurisdictions also need to adapt to the changing paradigm, and Mauritius, with its commitment to sustainable development, is well-positioned to take a leading role in this emerging landscape.
Climate Goals and Investors’ Demand: The Impetus for ESG Investing
The impetus for the increased focus on ESG investing comes from increased pressure to meet climate goals and a shift in investor demand.
Nationally determined commitments (NDCs), set by the Paris Agreement, are pushing African countries to take the necessary measures to meet the requirements. Mauritius has committed to reducing its greenhouse gas emissions by 40% by 2030, requiring funding of USD 6.5 billion, of which USD 4.2 billion must come from international donors and agencies. To achieve this and meet its NDCs, the government aims to develop a green finance framework, including a regulatory and supervisory framework for issuing sustainable and green bonds. To this end, the Bank of Mauritius published the “Guide for the Issue of Sustainable Bonds in Mauritius” in June 2021 (the BOM Guide), and the Financial Services Commission issued “Guidelines for Issue of Corporate and Green Bonds in Mauritius” on December 23, 2021 – amended in April 2022 (the FSC Guidelines) – to promote ESG investing and providing a roadmap for investors.
In addition, Millennials and Generation Z investors are increasingly looking for more than just financial returns – they want their investments to have a positive impact on the environment and society as a whole. This shift in demand is causing a change in the investment market, with sound ESG policies becoming a prerequisite for investing.
ESG investing is also proving to be a way to improve returns, thus attracting more investors. Evidence shows that private equity funds that integrate ESG considerations tend to perform better financially, enticing investors looking for both financial returns and positive societal impact.
A recent report by PwC showed that the ESG segment is set to grow by over 5% per annum to reach $100 trillion by 2025. This creates significant opportunities for wealth management firms that can offer robust ESG investment strategies.
Regulations around ESG Standards
One of the challenges with ESG investing has been the lack of universally recognized standards. Several industry gold standards have emerged, including those established by the World Economic Forum, the International Business Council, and the United Nations Development Programme. However, these are not yet universally accepted.
The European Union (EU) implemented the Sustainable Finance Disclosure Regulation (SFDR) in March 2021 to address this. The SFDR aims to make the sustainability profile of funds more comparable and easier to understand for investors. The regulation sets requirements for fund managers based in the EU and those managing capital raised in the EU, including managers based in the UK, the US, Asia, or Africa raising funds in Europe. Funds with European Limited Partners (LPs) must now ensure that they make additional disclosures about ESG policies and adverse sustainability impacts in their fundraising documents, periodic reports, and on their websites.
Mauritius and ESG Investing
Mauritius’ track record of enhanced scrutiny regarding corporate governance makes it a natural fit for rigorous ESG review and reporting.
Moreover, Mauritius’s experienced community of independent advisors, administrators, auditors, non-executive directors, and fund managers can ensure robust and accurate ESG reporting. This will be attractive to wary investors who want to know that their investments positively impact society and the environment.
The Mauritian government has also implemented policies to promote ESG investing. In 2019, the government made it mandatory for companies listed on the Stock Exchange of Mauritius to report on their ESG performance in their annual reports. This move toward transparency has helped increase awareness and interest in ESG investing.
Additionally, the government has established the Green Finance Task Force (GFTF) to promote sustainable finance and green projects. The GFTF is working on developing sustainable investment products, encouraging green bonds, and attracting green investment to the island.
Opportunities in ESG Investing
The focus on ESG investing creates opportunities for wealth management firms, and wealth managers who clearly articulate their ESG proposition will likely exceed fundraising expectations. Funds with strong ESG credentials can differentiate themselves from their competitors in markets lacking supply, making it extremely competitive to bid for assets.
With improved returns and a growing demand for investments that align with investor values, ESG investing is now a crucial element of modern wealth management. Mauritius is well-placed to support sustainable investment, with a robust regulatory framework for sustainable and green bonds. Wealth management firms that can adapt to the new landscape and offer ESG investments will be able to thrive in the new era of finance.
