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UAE tops international ranking for green finance commitment

Majid Al Futtaim opening a new Carrefour centre in Dubai in 2017. The group has collaborated with Standard Chartered on several green initiatives WAM
Majid Al Futtaim opening a new Carrefour centre in Dubai in 2017. The group has collaborated with Standard Chartered on several green initiatives
  • Survey covered countries across Europe, the US, Asia and UAE
  • UAE financial institutions ‘must support their communities’
  • Green lending is opportunity for growth and revenue

The UAE has been recognised for its commitment to financing a green and sustainable future.

The Gulf state recorded the highest scores among several key markets in the Financial Services: State of the Nation Survey 2022, which spoke to 758 managers at financial institutions and banks across France, Germany, Hong Kong, Singapore, the UK, the US and the UAE.

It found that 99 percent of UAE respondents agreed that financial institutions have a responsibility to support the communities they serve, up from 88 percent last year.

The emirates’ appetite for green lending also ranked highest, with 94 percent agreeing that it presents an opportunity for growth and revenue generation.

“Financial institutions play a key role in financing the transition to net zero, and ensuring capital is assigned in the most efficient and low risk environment,” Vijay Bains, group head ESG at Emirates NBD, told AGBI

Environmental, social and governance (ESG) issues were an important concern, 96 percent of respondents said.

“ESG initiatives have become a board level agenda item, driven by the UAE Net Zero 2050 commitment combined with its hosting of Cop28 in 2023,” Bains said.

“The growth of sustainable finance has led to the addition of ESG initiatives to several organisations’ board agendas as well.”

Catriona McDevitt, partner and head of banking and finance at UAE law firm Hadef & Partners, added: “Although ESG initiatives have been present in the UAE for a number of years, it appears that there has been a transition in the market from perceiving it as part of a high-level concept – something that’s a nice to have but not essential – to a real focus on implementing ESG initiatives, policies and procedures at board level in the last 18 months.”

The increased significance being given to sustainable finance has in part been driven by the UAE government’s top-down approach. 

In 2020, the state introduced its first set of Guiding Principles on Sustainable Finance, a result of collaborative efforts among a number of financial bodies in the UAE.

These principles have served as a catalyst in fuelling the growth of green lending. 

McDevitt said that UAE regulators recognising the importance of green lending and sustainable finance has set the tone for various financial institutions to adopt such financing. “We expect to see this grow exponentially, in line with global demand,” she added.

“Financial institutions will need to play a key role in financing green projects and are likely to do so, given the importance that has been attributed to sustainable finance in the UAE. 

“A number of banks have already committed to sustainable finance through financing green bonds, sukuks and loans.” 

Green collaboration

The most recent example of this was Standard Chartered’s announcement last month that it had created the region’s first Sustainable Supply Chain Finance programme for the UAE’s Majid Al Futtaim, operator of the Carrefour franchise across the Middle East, Africa and Asia. 

The programme enables Majid Al Futtaim to incentivise its supplier partners to improve their sustainability performance and indicators, as well as addressing key ESG risks within the supply chain.

Majid Al Futtaim and Standard Chartered have previously collaborated on Majid’s first sustainability-linked loan (SLL), a number of green bonds and a sukuk.

A report published by Standard in April last year concluded that the UAE alone would require $681 billion of investment to finance its transition to a net zero economy, thereby creating a huge business opportunity for local financial institutions.  

Last November, Mena venture capital firm VentureSouq announced it would launch a new UAE-based climate fund to support companies developing solutions for the green economy. It will be the first such fund with a global mandate out of the UAE. 

Banks in the state have been steadily ramping up their green financing activity over the last couple of years.  

In October 2021, First Abu Dhabi Bank became the first GCC bank to join the Net Zero Banking Alliance, aiming to galvanise climate action in the financial sector.

First Abu Dhabi Bank is regarded as one of the region’s most active green lenders. In October last year it sold $700 million worth of green bonds, and in early December it arranged Majid Al Futtaim’s second SLL, valued at $1.25 billion. 

Towards the end of 2022, Dubai Islamic Bank unveiled plans to finance environmental and social projects under a new sustainable finance framework that allows the lender to issue green and sustainability-linked Islamic bonds and loans to fund projects in renewable energy, clean transport, green buildings and wastewater management, as well as support job creation and affordable housing.

Dubai Islamic Bank which ranks as the UAE’s largest Islamic bank and the second largest in the world with group assets in excess of $80 billion, in November sold $750 million of its debut sustainable Islamic bond.

“ESG lending is linked to international standards of sustainable finance, with Dubai emerging as one of the leading sustainable Islamic finance centres in the world,” Bains said. 

“Financial institutions in the UAE will play a pivotal role in net zero financing, extending financing support, ESG advisory and ensuring projects are financed in the correct manner, whether through social bonds, climate bonds or other sustainable finance measures.”