Saudi Arabian investment reform as part of Vision 2030 could enable sustainable development

Vision 2030 and public investment fund reform could be a unique opportunity to reduce oil dependence and contribute to global effort for carbon emissions reduction, says London Business School expert

Dubai, UAE, 25 May 2016 – A successful restructure of the Saudi Arabian Public Investment Fund (PIF) would represent a great opportunity for Saudi Arabia to have a positive impact not only the region, but also the world, says a London Business School strategy expert. The transformation of the PIF is a key aspect of Saudi Vision 2030.

Ioannis Ioannou, Associate Professor of Strategy and Entrepreneurship, London Business School, says: “Vision 2030, if implemented with sufficient realism and practicality, represents a unique opportunity for Saudi Arabia to leverage this important role that capital markets are playing globally, in terms of allocating scarce financial resources towards building a sustainable economy, generating green jobs, promoting environmentally friendly business and establishing socially inclusive organizations. 

“For a transformation plan that aims to slash wasteful government spending, develop the non-oil economy by boosting private sector investments and weaning the population off its dependency on cradle to grave benefits, it seems to me that there are enormous benefits to be generated through aiming for a sustainable economy.” 

Dr Ioannou, whose research focuses on sustainability and corporate social responsibility, cites the success of Norway’s US $870bn oil fund: “The Norwegian fund is the world’s largest sovereign fund that explicitly integrates ESG issues as an integral part of its investment process,” he says. “To-date, the fund has already divested from 23 palm oil companies and recently excluded four of Asia’s biggest conglomerates precisely over concerns of environmental damage.” 

He adds: “In recent years and around the world, the issues of sustainability and social responsibility have come to centre-stage because the challenges that humanity faces today are immense, from climate change to corruption and extreme poverty, to name a few. Sustainability arises as the most viable long-term solution to these severe problems.” 

Dr Ioannou also sees positive consequences on the global stage should Saudi Arabia execute its plan successfully. “Such a strategy, if well implemented, will also help better align the country with the Sustainable Development Goals (SDGs) and contribute towards the global effort for a reduction in carbon emissions, as articulated in the Paris Agreement.”

“There is no question that the implementation of such a plan will be, at best, challenging. But I think support for the changes, both domestically and globally, is more likely to materialise if the objective of a sustainable, inclusive and transparent economy are genuinely brought to centre-stage.”

With the price of crude oil decreasing by more than 50% in the past 18 months alone, Saudi Arabia – where 70% of government revenue is derived from oil – has signalled its intent to change economic course on the path to sustainability.