Foreign policy concerns are influencing state-owned investors’ approach to investing in Israel, with Arab rapprochement with this advanced economy contrasting with growing European caution about human rights.
This week, NBIM which manages Norway’s US$1.3 trillion GPFG has excluded two Israeli firms Shapir Engineering and Industry and Mivne Real Estate KD from its public equity portfolio due to their alleged involvement in developing settlements in the West Bank. Amid heightening hostilities between Palestinians and the Israeli government, NBIM stated there was an “unacceptable risk that the companies contribute to systematic violations of individuals’ rights in situations or war or conflict.” The Norwegian investor said its Council on Ethics “has not conducted an independent assessment of all aspects of the recommendations, but is satisfied that the exclusion criteria have been fulfilled.”
NBIM’s decision is largely symbolic as its holdings in these companies are relatively small. At end-2020, its stake in Mivne Real Estate KD was worth US$11.9 million, while the stake in Shapir Engineering and Industry totalled US$1 million.
NBIM’s decision is completely dwarfed by capital from the UAE fund Mubadala, which in April agreed to acquire a 22% stake in Israel’s offshore Tamar gasfield for US$1.1 billion, although not exposed to political conflicts. The Abraham Accords Peace Agreement, brokered by President Trump in September 2020, is opening new avenues for Abu Dhabi sovereign wealth fund Mubadala to invest in Israel.
Mediterranean gas resources emerged as strategic assets with the Tamar reservoir and the Levant basin playing an important role in the development of the sector. Tamar is Israel’s second biggest field after Leviathan and supplies gas to Israel, Jordan and Egypt. Tamar is strategically important for Israel as it has enabled the country to switch its power generation to national gas and reduced dependence on oil and coal.
Mubadala has already invested in Israel via its renewables arm, Masdar. In January, Masdar and Israel's EDF Renewables signed a strategic cooperation agreement to invest in the development of renewable energy projects in Israel. As part of the agreement, Masdar is the strategic partner of EDF Renewables Israel, a subsidiary of the French utility giant EDF, which already operates 18 solar energy projects in Israel. Masdar committed an initial US$100 million, but this investment is expected to grow in coming years. The Abu Dhabi fund is seeking to support Israel’s move towards 30% renewables energy generation by 2030.
While Mubadala maybe the first Arab SWF to be pumping money into Israel, other funds arrived before it, notably Temasek which has sought opportunities in the country’s strength in technological innovation – a favored target of the Singaporean investor. Last year, it invested US$365 million in Rivulis Irrigation for an 85% stake, supporting a pioneer in agritech. In 2018, it acquired Israeli cybersecurity business Sygnia for US$250 million. Having established a foothold, Temasek could be looking to acquire more Israeli tech startups, particularly those oriented towards tech priorities that align with national objectives in food security and cutting-edge technological innovation.
