How do you solve a problem like MBS? Saudi Arabia presents a governance risk impact investors can’t ignore

ImpactAlpha Editor

Imogen Rose-Smith

Editor’s note: ImpactAlpha contributing editor Imogen Rose-Smith, a longtime senior writer for Institutional Investor, contributes a bi-weekly column on the policies, practices and strategies of the largest asset allocators, including pensions, foundations, and endowments. As Imogen says, she’ll be “tracking what investors do, not just what they say.”


ImpactAlpha, May 10, 2021 – In the early afternoon of Oct. 2, 2018, the Saudi dissident and Washington Post columnist Jamal Khashoggi walked into Saudi Arabia’s consulate in Istanbul to secure paperwork he needed to marry his fiance, who waited anxiously outside. She never saw him again. 

The world now largely agrees that Khashoggi, 59, was tortured and killed at the behest of Mohammed bin Salman Al Saud, Saudi Arabia’s crown prince and deputy prime minister. 

For investors who assess countries, along with companies, for ESG, for environmental, social and governance factors, Saudi Arabia has long gotten a red flag for ‘G.’ And the governance risks have risen dramatically since Mohammed bin Salman, widely known as MBS, took over effective leadership of the country in 2017.

The 35-year-old crown prince swooped in as a modernizing influence with a promise of economic transformation and social change. He quickly showed himself to be a ruthless and controlling ruler. The murder of Khashoggi is only the most blatent example of MBS’s authoritarian streak. Under the guise of an anti-corruption campaign, he has cracked down on his enemies. He is a leading actor in a horrific war in Yemen, and has overseen the imprisonment of women’s rights activists even while granting women more freedoms. 

Despite the evidence, Saudi Arabia has remained a magnet for some ESG and impact investors. 

Watching this January’s smooth livestream from the Saudi capital of Riyadh of the Future Investment Investment, it was easy to forget just how ruthless the Saudi regime is. Dulcet tones and earnest promises, and an abundance of women speakers invoked common purpose and the building of a better tomorrow. 

The summit was hosted by “a new generation of non-for-profit global foundation that seeks to empower the world’s brightest ideas to materialize and scale sustainably.” H.E. Yasir Al-Rumayyan, chair of the FII and governor of the Saudi Arabia’s Public Investment Fund pronounced the theme of the forum: “The Neo-Renaissance.”

The Public Investment Fund, one of the best proxies for understanding the country’s investment clout, has grown from $150 billion in assets in 2015 to about $400 billion today. In January, MBS said the fund is on target to more than double its assets to $1.07 trillion by 2025. The Saudi royal family itself has an estimated net worth in excess of $95 billion, according to Bloomberg Wealth. 

Honored guests mostly attended by video because of COVID restrictions. They included BlackRock’s Larry Fink, SoftBank Group Masayoshi Son, Goldman Sachs’ David Solomon and Bridgewater Associates’ Ray Dalio (watch their panel discussion here). Other speakers were Thomas Barrack of Colony Capital, David Rubenstein of The Carlyle Group and Thomas Gottstein, CEO of Credit Suisse Group.

And, of course, MBS himself. 

Absolute control 

Established in 1932, the Kingdom of Saudi Arabia is governed by the House of Saud, the vast and sprawling patriarchal royal family. The discovery of oil in 1937 made the Kingdom, though not its overall population, rich and powerful. The birthplace of Islam, the Saudis rule with the support of the clerics who enforce a strict religious orthodoxy. 

In January of 2015, King Abdullah bin Abdulaziz Al Saud died at the approximate age of 90 and was replaced by his brother, King Salman bin Abdulaziz Al Saud, 85. King Salman’s appointment, not without its palace intrigue, came to mean that his family, including his favorite son, MBS, would replace others in the line of succession.

Upon his ascent to the crown, King Salman appointed MBS to the powerful role of minister of defense. In June 2017, the king made MBS crown prince and deputy prime minister, replacing his cousin, Mohammed bin Nayef.

In 2016, MBS rolled out a new economic plan for the Kingdom. Entitled Vision 2030, the ambitious plan aims to transform the Saudi Arabian economy by 2030 through enhanced economic development, and the transition away from dependency on oil and natural gas. MBS’s plan also called for greater integration of women into the Saudi workforce, a dramatic change in a country where women and men are still largely segregated. 

A crucial plank of the Vision 2030 platform was the Public Investment Fund, which in September 2017 announced the Future Investment Initiative, an invitation-only conference sponsored by King Salman. The Saudi Gazette called the FII “a game-changing platform exploring the new trends, opportunities, challenges and emerging industries that will shape the world economy and investment environment over the coming decades.”

And so the great and the good went to the Ritz-Carlton in Riyadh for the October 2017 conference, where MBS laid out the Vision 2030 plan. There were pledges and commitments, and the whole jamboree, for an event that quickly came to be known as “Davos in the Desert.” 

Not two weeks later, MBS rounded up nearly 400 of his family members, including the man he replaced as crown prince, along with politicians and religious clerks. He confined them in the very same hotel which had just hosted the FII summit. 

What happened next, depending on your perspective, was either an anti-corruption purge or a shake down of powerful groups and rivals. It resulted in arrests and the seizure of financial assets, as well as the odd bit of torture. In all, $107 billion of assets was returned to the state coffers. Some of those caught up in the crackdown remain confined or under house arrest. Others have died or are still missing.

Among the critics of the crackdown was Jamal Khashoggi.

This February, the U.S. government’s Office for the Director of National Intelligence declassified its report on the assassination. Entitled “Assessing the Saudi Government’s Role in the Killing of Jamal Khashoggi,” the four-page document leaves little room for doubt over who was responsible.

The DNI says it based its assessment of Mohammed bin Salman Al Saud’s involvement on “the crown prince’s control of decision making in the Kingdom, the direct involvement of a key adviser and members of Muhammed bin Salman’s protective detail in the operation, and the crown prince’s support for using violent measures to silence dissidents abroad, including Khashoggi.” 

Since 2017, the DNI declared, “the crown prince has had absolute control of the Kingdom’s security and intelligence organizations, making it highly unlikely that Saudi officials would have carried out an operation of this nature without the crown prince’s authorization.”

After initially attempting to deny any involvement in the killing, Saudi prosecutors tried 11 people for their involvement in Khashogg’s death. MBS has has said he accepts ultimate responsibility, but continues to deny that he ordered the assassination, which the Saudi government insists was not premeditated. Saudi Arabia disagrees with the findings of the DNI report.

There was international outrage over Khashogg’s assassination. Then the world mostly moved on. 

Short memories

The oil-rich Kingdom of Saud under MBS does not appear to be a regime with which impact investors would ever want to do business. And yet, at least for some, it very much is. In clean and renewable energy, Saudi Arabia just might be the biggest game around, with MBS leading the charge.

The ‘G,’ or governance, risk of doing business in questionable countries, or with questionable sovereign wealth-related entities, is not trivial. In recent years Goldman Sachs has had to pay over $5 billion to resolve investigations into its involvement with 1MBD, a corrupt Malyasian sovereign wealth fund that, too, represented itself as a force for social good. 

The cozy relationship between MBS and the Trump administration predates Trump even taking office. Once in the White House, wonder-boy son-in-law Jared Kushner was largely in charge of the relationship. The president, known to look fondly on autocrats and dictators, was not one to let a little murder get between friends. 

In the immediate aftermath of the killing, some business leaders stepped back from their dealings in Saudi Arabia. U.K. entrepreneur Richard Branson suspended talks with MBS and his government over a collaboration, and a prospective $1 billion investment, with Branson’s space company, Virgin Galactic.

“What has reportedly happened in Turkey around the disappearance of journalist Jamal Khashoggi, if proved true, would clearly change the ability of any of us in the West to do business with the Saudi government,” Branson wrote in an October 2018 post.

Khashoggi’s assassination was not exactly out of character for MBS, who had openly encouraged the suppression of Saudi dissidents abroad. From the perspective of Wall Street , however, Khashoggi’s killing did have some unfortunate timing. It happened right before the second FII conference in 2018. As a result, many business leaders including JPMorgan’s Jamie Dimon and BlackRock’s Fink did not attend. 

But by the 2019 initial public offering of Saudi Aramco, the state-owned petroleum firm and one of the largest companies in the world, banks and service providers were falling over themselves to get a piece of the business. 

Out on the campaign trail, presidential candidate Joe Biden was highly critical of Saudi and of MBS and promised to make the country and its crown prince a “pariah.” In office, Biden is navigating the far trickier waters of keeping Saudi Arabia as an erstwhile ally in the Middle East, while also standing up to them on civil rights and other issues. 

Biden opted not to punish MBS when the DNI report came out, a pragmatic decision for which he was roundly criticized by the left and in the press. The aministration’s sanctions on others who were involved in the assassination, and the release of the report itself, drew rebukes from Saudi Arabia and others in the region. 

And, as the 2021 attendee list attests, it can be hard to quit Davos in the Desert. 

The problem for Fink et al (Dimon does not appear to have attended the summit in 2019 or 2021) is that nothing materially has changed with regards to Saudi Arabia and MBS’ complicity with the Khashoggi killing between October 2018 and January 2021. Yes, some of the perpetrators were arrested, prosecuted and put to death. But what we know now is more, not less, damning for MBS. 

The facts are chilling. Khashoggi is believed to have been tortured by a 15-person assassination crew that included members of MBS’own body guard. His body was hacked up using a bone saw. Middle East Eye reported that a member of the Tiger Squad took one of Khashoggi’s fingers back to Saudi to show MBS that the journalist was dead. The Middle East Eye also said a member of the Squad began attacking Khashoggi’s body with the bone saw while he was still alive, though it is more likely he died before they started sawing off his limbs. 

Audio recordings released by Turkish authorities, some of which have been transcribed and reported, include Khashoggi’s last words: “I’m suffocating… take this bag off my head, I’m claustrophobic.” 

Cautionary tale 

It’s hard to blame businesses for following the money. That’s what they do. Firms like BlackRock and Goldman Sachs may even think they have a fiduciary duty to their shareholders to pursue business in such a wealthy nation as Saudi Arabia. 

Anyone who thinks there is daylight between Saudi’s sovereign wealth and its sovereign leaders would do well to read Billion Dollar Whale, the eye-opening account by Bradley Hope and Tom Wright of the scandalous and fraudulent Malaysian sovereign wealth fund, 1Malaysia Development Berhad, or 1MBD, in which Saudi features. 

It was MBS’ cousin, Turki bin Abdullah Al Saud, who was involved with 1MBD. Indeed, according to the Washington Post, the feud with this cousin and his family line caused the paranoia within MBS and his entourage that lead to Khashoggi’s murder. Turki bin Abdullah was one of the people detained in the Ritz-Carlton. He is still under house arrest and has been forced to give back money to the state. (Turki bin Abdullah and his business partner claim to have been among the victims of the apparent fraud.)

Billion Dollar Whale illustrates how sovereign wealth funds can appear to make impact investments in support of national goals while really being a vehicle for political influence and graft. 

The social media profile of Jho Low, the Malysian born businessman alleged to be at the center of the 1MDB scandal and currently an international fugitive/businessman, is peppered with the type of laudatory language all too common on the titans-of-capitalism conference circuit, including praise for the Sustainable Development Goals and a commitment to “advance human progress through capital and social investments in a diverse range of projects.”

It’s tempting to dismiss 1MBD as a flashy, almost comical, one-off. The fund financed the film Wolf of Wall Street while funding a lifestyle for its architects even more excessive then the one actor Leonardo DiCaprio enjoys in the film. But no lesser firm then Goldman Sachs got caught up in the scandal. 

Last year, Goldman Sachs CEO David Solomon, aka DJ D-Sol, forfeited part of his salary as part of payment of the $2.9 billion fine to the U.S. to resolve Goldman’s role in the 1MBD scandal. Other executives were also subject to claw backs, pay and bonus restrictions, and Goldman also made a separate $3.9 billion settlement with Malaysian prosecutors. 

The former Malaysian Prime Minister Najib Razak was found guilty of corruption in connection to his relationship to the sovereign wealth fund and has been sentenced to 12 years in jail. Currently appealing that conviction, Razak was most recently in the news for flouting COVID restrictions at a local chicken and rice shop.

Vision 2030

Of course, the Saudi Arabia’s Public Investment Fund and other capital pools under MBS’ control are not considered fraudulent sovereign wealth funds. 

Even after detaining members of his own family and being involved in the murder of a journalist and critic of his regime, MBS continued to be viewed as many as a reformer, and not, as one critic called him, “a sociopath,” albeit one capable of charming willing journalists like The New York Times’ Thomas Friedman.

Friedman continued to embrace MBS, who he promoted since 2015, albeit more and more uncomfortably so, and to increased criticism and ridicule. The assasination of Khashoggi deprived the journalistic community of someone knowledgeable about MBS and his court and willing to speak truth to power.

One area of light that MBS supporters eagerly pointed to is the role of women in the Kingdom. In 2018, women were granted the right to drive, a huge boost to the ability of women to live and work independently. There have also been reforms to women’s rights in the workplace, including efforts to implement equal pay for equal work. And women’s legal rights have improved, including allowing them to apply for passports and to travel without the permission of a male guardian. The chair of the Saudi Arabian stock exchange is a woman. 

Even these parts of MBS’ Vision 2030 come with a knife twist. Women’s rights in the Kingdom are still severely restricted and MBS has cracked down on female dissidents. In 2020, a Saudi court sentenced the women’s rights activist Loujain al-Hathloul to six years in prison on terrorism-related charges. Other women’s rights activists had also been detained, causing a rare rebuke from the United Nations.

And the issue is regional, given the treatment of the wives and daughters of United Arab Emirates vice president and prime minister Sheikh Mohammed bin Rashid Al-Maktoum. The ruler of UAE, Crown Prince Sheikh Mohammed bin Zayed Al-Nahyan, or MBZ, is a mentor to MBS. 

It was alongside MBZ that MBS took the lead in the coalition of Arab states in the ongoing war in Yemen, which Saudi and others entered in 2015. MBS has not acknowledged the utter human rights disaster.

The more compelling story line for ESG and impact investors has been the imperative for Saudi Arabia to diversify and reform if it is to continue to prosper after the oil runs out, or when climate regulation clamps down on fossil fuel use. Which is why, at this year’s FII conference, Saudi energy minister Prince Abdulaziz bin Salman said that the country is aiming to be 50% powered by renewables by 2030. 

“We will be ahead of Germany when it comes to renewables,” Prince Abdulaziz promised. He even argued the Paris climate agreement “will be a good agreement from us, because it will bring us lots of economic growth.” 

Today only 0.05% of Saudi’s energy supply is from renewables, with 42% coming from oil and 57.8% from natural gas, according to the International Energy Agency.

Saudi Arabia does not appear to have made much progress in greening its grid so far. Indeed, one much-touted part of Saudi’s renewable energy strategy has already fallen off the rails.

In March 2018, Saudi announced plans to build a 200-gigawatt solar-power generation project, among the world’s largest. The Saudis’ partner was everybody’s favorite Japanese venture capitalist fund, SoftBank. Saudi is the major investor in SoftBank’s first Vision Fund.

The project, expected to cost $200 billion and to be completed by 2030, was announced at a press conference featuring MBS and SoftBank’s Masayoshi Son. MBS and Son signed a memorandum of understanding between Saudi Arabia’s Public Investment Fund and the SoftBank Vision Fund to form the joint venture. Within months, the deal was all but dead, with The Wall Street Journal reporting that the country had decided to shelve the SoftBank project in favor of a broader approach to be announced at a later date. 

All that wealth still has money managers salivating. In 2017, Blackstone announced $20 billion in Saudi backing for a U.S. infrastructure fund. Earlier, MBS made a $3.5 billion investment in the ride-sharing powerhouse Uber, along with other Silicon Valley unicorns. 

All of which goes some way, presumably, to explain what hedge fund manager Jeff Ubben was doing at the Ritz-Carlton in Riyadh this January. Ubben, the force behind $20 billion ValueAct Capital, purports to be redeeming himself with his new impact investment firm, Inclusive Capital Partners, which is seeking to raise an $8 billion fund. 

And there he was as a featured speaker on the final panel of the Future Investment Initiative. Entitled “Redefining leadership for the post-COVID era: How to inspire a 21st-century economic renaissance.” The session was moderated by Princess Reema bint Bandar bin Sultan bin Abdulaziz Al Saud, Saudi’s ambassador to the United States, who was appointed in 2019 by MBS.

Ubben made his remarks sitting next to Princess Reema. “Companies have lost [a sense of] place,” he told the group. “I’m finding and I’m believing that purpose and place can be rediscovered and reestablished by these companies.” He went on to gush, somewhat nonsensically, “I actually think, as I listened to the crown prince today talking […] that that is the essence of Vision 2030, which is to go local and assert place in your strategy as a country.” 

What kind of place is Saudi Arabia? Is it pursuing a reformist vision, or an autocratic dystopia? And what kind of man is MBS? Visionary or villain? 

They sawed through Khashoggi bones. In detention, Loujain al-Hathloul was threatened with rape and death. I’m guessing these kinds of topics don’t come up in chit-chat over canapés down at the Riyadh Ritz-Carlton. (Consider the potential Tripadvisor reviews: “Was tortured here. They hung me upside down. But the spa is great!!! Five stars.”)

F. Scott Fitzgerald famously said “the test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.” The Biden administration apparently is able to do so. 

Should impact investors do the same? Are the very rich held to a different moral standard simply because they have more money?  

Maybe the last word should go to Khashoggi, who wrote in an April 2018 column, “While MBS is right to free Saudi Arabia from ultra-conservative religious forces, he is wrong to advance a new radicalism that, while seemingly more liberal and appealing to the West, is just as intolerant of dissent.”

The courtship of Saudi money is not likely to end well. Impact investors can’t say they weren’t warned. 


Imogen Rose-Smith is a contributing editor at ImpactAlpha. A longtime senior writer for Institutional Investor, she was most recently a fellow in the Office of the Chief Investment Officer of the University of California.