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Middle East banks still keen on green despite pushback

Commercial International Bank in Egypt is one of the Middle East lenders that signed up to the net zero alliance Reuters/Mohamed Abd El Ghany
Commercial International Bank in Egypt is one of the Middle East lenders that signed up to the net zero alliance
  • Global banks exit net zero alliance
  • Interest in Middle East still robust
  • Sustainable funds bring better returns

Green investments remain a trillion-dollar opportunity for Middle East investors, analysts say, despite global pushback among other banks.

About $30 billion was withdrawn from climate-focused mutual funds last year as increased interest rates and scepticism over socially responsible investing or “greenwashing” generated strong headwinds.

The situation will be exacerbated by President Donald Trump’s day-one executive order pulling the US out of the Paris climate agreement for the second time, even though the world breached the critical 1.5C of warming last year.

The Net-Zero Banking Alliance, which initially committed 140-plus banks from around the world to “transition the operational and attributable greenhouse gas emissions from their lending and investment portfolios to align with pathways to net zero by 2050 or sooner”, continues to haemorrhage members. 

Last week the Canadian banks BMO, National Bank of Canada, TD Bank Group and Canadian Imperial Bank of Commerce left the group, joining US banks Morgan Stanley, Citi, Bank of America, Wells Fargo and Goldman Sachs who have all resigned from the green alliance since December.

There has been no indication that banks from the Middle East, which include Abu Dhabi Commercial Bank, Commercial International Bank in Egypt and First Abu Dhabi Bank (FAB), will join the exodus.

Ashish Marwah, chief investment officer at Neovision Wealth Management in Abu Dhabi, says the interest in green investments from banks and investment companies in the region is “more rational but still robust”.

“We are coming off globally from a ‘go-go’ attitude to investing in the space,” Marwah says.

“Some of the business models that just relied on cheap interest rates or really long gestation periods, or even not having reliable IRR [internal rate of return] models, are being challenged.”

A report by consultancy KPMG detailed how the GCC’s focus on green investments is projected to contribute up to $2 trillion to regional GDP by 2030, primarily through sectors such as renewable energy and sustainable infrastructure.

FAB, the UAE’s largest bank, has facilitated nearly AED216 billion ($59 billion) in sustainable and transition financing projects, 43 percent of its 2030 target of AED500 billion.

Lucy Chow, general partner at the World Business Angels Investment Forum and an AGBI columnist, says: “I know family offices, philanthropic organisations, non-profits are already applying a climate lens into their portfolios.”

Worldwide, climate tech financing dropped by 29 percent, to $56 billion, between the fourth quarter of 2022 and the third quarter of 2023, signalling a sharp deviation from earlier growth trends, a report from PwC has found. 

Despite this cooling, investors from the Middle East directed $3.6 billion into climate tech globally in 2024.

Noel Aoun, group chief strategy officer at the UAE’s Taqa Group, said in the PwC report: “Despite short-term setbacks due to the global energy crisis and other geopolitical pressures that have resulted in lower investment in climate tech, we believe that, in the long run, climate tech will play a major role on the road to net zero.” 

The UAE is one of the countries that has set a target to reach net zero carbon emissions by 2050.

Higher returns, despite falling investor interest

Ramnath N Iyer, sustainable finance lead for Asia, at the Institute for Energy Economics and Financial Analysis, points out that “sustainable funds generated better returns than traditional funds in 2023". The median return for green funds was 12.6 percent, against 8.6 percent for traditional products. 

However, the most recent annual tracker from the Association of Investment Companies showed that investor interest globally in environmental, social and governance (ESG) had fallen for the third year in a row.

The survey, which polled 400 investors and 202 intermediaries, revealed a steady decline in those considering ESG factors when investing, dropping from 66 percent in 2021 to 48 percent in 2024.

All the same, the KPMG report revealed over half of CEOs in the UAE (56 percent) and the Middle East (51 percent) expect to see a significant return on their ESG investments within three to five years.

Manpreet Gill, chief investment officer for Africa, the Middle East and Europe at Standard Chartered, says: “I think ESG investing was a big theme, if you go back three to four years.

“That does not automatically translate to, it was a fantastic investment two years ago or it's a terrible investment today. I think, to us, the sensible balance is always somewhere in the middle.”