The issuance of green and sustainable finance, which targets eco-friendly projects, grew by 32 percent in the UAE last year, compared to 2021, according to Arthur D. Little.
So what is green finance?
The Organization for Economic Co-operation and Development (OECD) defines green finance as financing that aims to achieve economic growth while reducing pollution and greenhouse gas emissions, as well as improving the efficiency of the use of natural resources.
The World Bank was the first to issue a green investment fund in 2008, but the first green bonds were issued in July 2007, by the European Investment Bank.
Under the umbrella of green finance, financial instruments include green bonds, loans, sukuk, green investment funds, and green insurance.
Accelerating the pace of ESG adoption
In a new report, Arthur D. Little, the world’s leading management consulting firm, has highlighted the growing trend of financial services organizations across the Middle East and North Africa (MENA) region accelerating the adoption of environmental, social and governance (ESG) practices as a key strategic pillar to strengthen their commitment to sustainability across the board.
The report, titled ‘Banks in the Middle East Driving Sustainable Finance Growth, with a Focus on Developing ESG Strategies’, said that major public and private institutions in the UAE, including the Dubai Financial Market, the Ministry of Climate Change and Environment, and companies listed on the Securities and Commodities Authority (SCA), showed an increase in ESG reports.
Majid Al Futtaim has secured a $1.25 billion revolving credit facility from First Abu Dhabi Bank (FAB) to meet the company’s environmental, social, and governance (ESG) objectives.
The report pointed out that the Middle East and North Africa region has recorded remarkable progress in terms of sustainable and green finance. Investments in this area reached $24.55 billion in 2021, compared to $3.8 billion in 2020, achieving a remarkable growth of 532 percent year-on-year.
On the other hand, Dubai Islamic Bank (DIB) is currently finalizing its reports on ethics, integrity, business environment improvement, positive societal impact, environmental stewardship, financing, and sustainable investments.
According to the report, “the UAE continues its journey to build momentum on environmental, societal and corporate governance (ESG) practices across the MENA region, building on the exceptional 32 percent year-on-year growth in green and sustainable finance in 2022.”
A leading position for the green bond market in the Middle East
Andreas Boelo, Partner at Arthur D. Little, said: “ESG practices have seen increasing interest from organizations in the financial services sector in recent times. This reality is most notably reflected in the products and services provided by banks, which reflect their sustainable visions. The MENA green bond market is in a leading position, outperforming its global counterpart.”
In his view, banks “will need to work rapidly to develop their strategies and implement their future aspirations across all areas, to meet emerging needs and comply with new reporting standards.”
According to Nael Amin, Senior Manager in Financial Services at Arthur D. Little, “Many financial institutions in the Middle East have designed comprehensive ESG strategies that open new pathways for higher growth, employment, cost reduction, regulatory compliance, and employee satisfaction.”
Examples of recent versions
Less than two weeks ago, DIB, the UAE’s largest Shariah-compliant lender by assets, raised $1 billion from its second sustainable Sukuk as it continues to diversify its funding base.
In September, Abu Dhabi Commercial Bank, the country’s third-largest bank, priced its first green bond at $500 million, which will help it finance projects in accordance with environmental, social and governance (ESG) standards.
Last year, First Abu Dhabi Bank (FAB), the UAE’s largest bank by assets, introduced a multimillion-dollar green trade credit line to wind turbine maker Senvion India as part of its efforts to boost its zero-sum ambitions.
The global sustainable finance market, valued at $3.65 trillion in 2021, is expected to reach $22.48 trillion by 2031, at a compound annual growth rate of more than 20 percent between 2022 and 2031.
Green bond and sukuk issuances from the GCC hit a record high in 2022 at $8.5 billion from 15 deals, compared to $605 million from six deals in 2021, data from Bloomberg’s Capital Markets League tables showed last month.
According to the Boston Consulting Group, green bond issuance in the Middle East grew by 38 percent between 2016 and 2020. In 2020 alone, Middle Eastern governments led 97 percent of green bond issuances, compared to 13 percent four years ago.
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