UAE banks to increase green financing to $272bn

Cop28/Mahmoud Khaled

• First Abu Dhabi bank leads
• Focus on helping SMEs
• Climate lobbyists sceptical

Major national banks in the UAE are to boost their green financing commitments, aiming to exceed a collective AED1 trillion ($272 billion), sources have told AGBI.

The banks aim to accelerate financing in areas such as assisting businesses in transitioning to zero carbon emissions, particularly in harder to abate and small and medium-sized enterprise sectors. 

They also plan to offer increased financing for new innovations, ecosystem restoration and biodiversity preservation.

This financial mobilisation comes as the UAE hosts the Cop28 climate conference at Expo City in Dubai. Abdul Aziz Al Ghurair, chair of the UAE Banking Federation (UBF), which represents 56 lenders in the Gulf state, confirmed the commitment on Monday.

In order of contributions, the leader is First Abu Dhabi Bank (FAB), followed by commitments from Mashreq, Abu Dhabi Commercial Bank, Emirates NBD and Dubai Islamic Bank.

According to a UBF report in September, the six banks have already collectively dedicated over AED190 billion in green financing for various projects in renewable energy, waste-to-energy and green technology, by the end of 2022.

“This is very welcome news for the region on a multitude of fronts, and reinforces the commitment of the UAE banks to the United Nations Sustainable Development Goals,” said Asad Ahmed, managing director and head of Middle East financial services at Alvarez & Marsal, which compiles the quarterly UAE Banking Pulse.

“Banks will need to meet the challenge of translating the commitment to action, and follow through with indices that measure delivery impact.”

FAB, also a strategic partner at the Cop28 conference, has already vowed to provide $75 billion in green financing from 2022 to 2030, with close to $20 billion funded by mid-2023.

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Vijay Valecha, chief investment officer at Century Financial in Dubai, said the announcement would help to combat negative perceptions of the Cop28 host.

“The significance of this initiative cannot be overstated, as the UAE, a major energy producer, is taking concrete measures to address global sustainability issues, countering suspicions held by some in the West,” he said.

However, climate lobbyists remained cautious. Tzeporah Berman, who is chair of the Fossil Fuel Non-Proliferation Treaty Initiative, pointed out that banks also need to phase out fossil fuel financing as they claim to escalate their climate commitments.

“Any bank, or any financial company that says that they have sustainable finance now, where they’re continuing to invest in fossil fuel assets, is not being honest,” she said.

Harjeet Singh, head of global political strategy at Climate Action Network International, said that while the banks are taking a welcome step in the right direction, it will be important to watch where the financing is deployed.

“The majority of employment and business are generated by micro, small, and medium enterprises,” he said. 

“That’s where we need to see if such support is going to go to those enterprises, because they need financial support in making that transition.”

The banking sector can leverage its lending power to motivate businesses and individuals to invest in sustainable projects, including renewable energy, energy efficiency, sustainable agriculture and waste management, the UBF report said.

In order for the global economy to achieve net-zero emissions by 2050 it requires an average of $9.2 trillion in annual spending on physical assets, according to research from the McKinsey Global Institute.

MR Raghu, CEO of research consultancy firm Marmore Mena Intelligence in Kuwait, said the “proactive” announcement by the UAE banking community will play “a pivotal role in UAE achieving carbon neutrality by 2050”.