More foreign investors will drive transparency in Saudi economy

The chief executive of the Tadawul said more accountability was needed.

Badr Jafar, founder of the Pearl Initiative, which encourages higher standards of corporate governance, at the forum. Pawan Singh / The National

Increasing foreign participation in Saudi Arabia’s stock market, the Tadawul, will lead to an increase in transparency and corporate governance among Saudi companies, according to its chief executive, Khalid Al Hussan.

“Institutional investors, as you know, need to know more about the [inner workings of] your company,” Mr Al Hussan said yesterday. He was speaking in Dubai at the second regional forum hosted by the Pearl Initiative, a regional corporate governance organisation, and the United Nations Global Compact.

“We [as an exchange] have an important role to play in encouraging companies to adapt enabling frameworks and become more transparent, and need to prove to them that doing so will benefit their businesses.”

Saudi Arabia introduced a framework for qualified foreign investors (QFIs) in May last year, enabling international investors to directly buy Saudi equities for the first time. The regulations were subsequently relaxed further last month, widening the definition of the QFIs permitted.

Total foreign ownership of Saudi stocks stood at 4.07 per cent of total market capitalisation as of October 20, according to data from the exchange.

Mr Al Hussan said the MSCI’s Emerging Market ESG Index, which gave greater weighting to companies with strong environmental, social and governance (ESG) standards, had outperformed the standard MSCI Emerging Market Index over the past 10 years

“So there is evidence that institutional investors are looking for companies that adopt good governance [practices] and a high level of transparency and sustainable practices,” he said.

The Pearl Initiative was founded in 2010 by business leaders from across the Arabian Gulf region, to encourage the adoption of higher standards in corporate accountability, transparency and governance.

Sheikh Nahyan bin Mabarak, the Minister of Culture and Knowledge Development, urged the region’s private enterprises to commit to sustainability practices in the forum’s opening keynote address.

“A critical bottom line for the [UN’s Sustainable Development Goals] is that private enterprises must be somehow persuaded to commit to sustainability,” Sheikh Nahyan told delegates.

“Corporate leaders must develop a new, shared understanding of what sustainability leadership requires, or face the prospect of becoming irrelevant.”

In a video address to the forum, the UN secretary general Ban Ki-Moon, said the adoption of proper sustainability standards made good business sense for private sector enterprises.

“Governance failure, humanitarian crises and persistent economic inequality have devastating consequences,” he said.

“More and more leaders understand that sustainable development is not just the right way forward, but serves [the] long-term interest of business and stakeholders by improving stability and prosperity.”

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