ESG investing is accelerating the appetite for sustainable finance

Collaboration among stakeholders needed to achieve common climate goals
ESG investing is accelerating the appetite for sustainable finance
Ahmed Abdelaal, Group CEO Mashreq

The MENA region is particularly vulnerable to the adverse effects of climate change due to various geographical factors, making it one of the most severely affected regions. This reality has created a sense of urgency for economic change in most countries across the region, especially as GCC nations make substantial progress in building resilient and sustainable non-oil economies. In this changing paradigm, new opportunities are surfacing for investors and financial institutions across a diverse range of industries, including renewable energy, infrastructure development, digital technologies, e-commerce, and fintech. This may be a vast spectrum of sectors, but what they all have in common is the increasing influence of sustainable finance.

The concept of responsible business has rapidly gained recognition in the public consciousness as an essential corporate requirement. This is evident in the promising outlook for sustainable financing. Moreover, within the framework of addressing climate change, sustainable financing has emerged as a crucial factor in meeting consumer preferences. Supported by regulatory initiatives, this has given rise to a new paradigm where the most viable investments are those aligned with environmental, social, and governance (ESG) principles. Consequently, consumers now possess the power to enact change through their choices.

As a result, the emergence of ESG investing has rapidly changed how investors think and the associated choices they make. In particular, the ESG spotlight has led to an emphasis on the importance of investment decisions that mitigate exposure to climate risk, comply with current and future regulations and limit any potential reputational damage. This is why banks and investment firms are devising green and sustainable strategies, incorporating them into their business strategies, and aligning their funding mechanisms to their sustainable development commitments.

Read more: Middle East companies adopting formal ESG strategies, increasing transparency

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Financing the region’s sustainability-focused long-term vision

We are witnessing the positive impact of these mechanisms as they drive successful outcomes, thanks in part to their inclusion of long-term agreements. Mashreq has played a pivotal role in expediting the uptake of sustainable financing opportunities, facilitating a total of $15.5 billion in investments in sustainable finance and adaptation across Egypt, India, Bahrain, Qatar, and the UAE over the past two years. Several of these nations are furthering their commitment to sustainability by actively promoting the issuance of green bonds and Sukuk.

Egypt was the first country to issue a sovereign green bond in MENA in 2020, issuing $750 million worth of five-year bonds. The sovereign green bond was seven times oversubscribed, leading to a 50 percent upsizing of the transaction to its $750 million ultimate issuance level. The investor response presents a glimpse into the opportunity and appetite for green financing in the MENA region, as well as an insight into how seriously investors are focusing on the social and economic threats from climate change.

Additionally, and in a nod to the worsening issue of water security, Mashreq has also facilitated $1.3 billion in water-related projects across Egypt, India, Bahrain, Qatar and the UAE that will build resilience to scarcity and water scarcity-related disasters.  As part of these efforts, the bank has been heavily involved in financing solutions for projects like the Abu Rawash Wastewater Treatment Plant in Egypt, among many other water-related programs.

This investment is set to have a significant impact, benefiting over 8 million individuals, primarily in the Giza Governorate, the Eastern side of the Nile River and the Cairo-Alexandria Desert Road. Additionally, the project has successfully created 1,600 employment opportunities, with 20 percent allocated for women, contributing to a broader positive social effect. Mashreq has also played a leading role in facilitating the Sustainability Linked Loan for Nogaholding in Bahrain, an impressive achievement considering its substantial value of $2.2 billion, making it the largest SLL in the region. Looking ahead, Mashreq’s vision is highly ambitious, aiming to achieve $30 billion in sustainable financing by 2030.

Collaboration among stakeholders to achieve common climate goals

However, such financing targets are only part of the picture. To further boost its impact, the banking sector must partner closely with its clients, advising them on transition strategies, managing risk and helping them access appropriate sustainable financing for their needs – across CAPEX, OPEX or even retraining their workforce and raising awareness among employees.

Partnerships with policymakers have also become important, not only regionally but at a global level. This year’s COP28 in the UAE – following COP27 in Egypt in 2022 – will provide a new opportunity for governments as well as the public and private sectors to collaborate to streamline details on national and regional finance frameworks, and work together to accelerate adoption of sustainable finance. This will help boost clarity, which is integral to strengthening investors’ appetites and confidence.

ESG investing

Looking ahead, all banks have a responsibility to build their sustainable financing solutions within the context of national, regional and international regulations, standards and policies. Across the MENA region, it is crucial for the banking sector to prioritize alignment with national and regional frameworks, including the UAE’s climate goals, along with global environmental initiatives. This imperative goes beyond financial considerations and extends to moral and ethical responsibility.

April 2023 saw Mashreq join the World Green Building Council’s Advancing Net Zero Readiness Framework as a Collaborator in the MENA region, following the bank’s decision to join the United Nations Global Compact initiative in August 2022. Through its involvement with both institutions, Mashreq looks to further incorporate the principles of social and environmental responsibility, integrity, transparency and robust social and governance practices across its operations and activities.

All corporations in the financial industry have a fundamental responsibility to act as corporate citizens and lead by example. With COP28 on the horizon, now more than ever – and particularly in the UAE – a firm commitment to ESG principles will provide leading banks with a competitive advantage and set them apart from their fellow industry players. This unique positioning becomes pivotal for the banking sector’s goal of fostering sustainable business practices and driving the adoption of sustainable financing. By doing so, these leading banks will be at the forefront, facilitating the rapid adoption of sustainable finance and paving the way for its accelerated growth.

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