To realise its full potential and emerge as a truly transformative force, sustainable finance demands a human-centric approach. “We should not limit our scope in sustainable finance to a certain trajectory,” explains Faisal AlShimmari, Head of ESG and Corporate Strategy at Mashreq. “Human-centricity should be key when providing affordable finance to ensure the achievement of a wider range of sustainable development goals (SDGs),” he says alluding to the broader definition of sustainable finance that encompasses green finance, social finance, governance considerations and more under its umbrella.
While acknowledging sustainable finance’s role in expediting energy transition, fighting poverty, addressing food security, etc., AlShimmari emphasises that countries cannot achieve the UN’s SDGs on their own. Citing UN data that highlights the trillions of dollars needed annually to meet global energy transition goals, he emphasises that without redefining public-private partnerships, countries risk falling short of their targets.
Financial institutions are an integral part of these partnerships. They must work with the government to address issues that hinder the establishment of a sustainable finance ecosystem. A major roadblock, AlShimmari points out, is a lack of clarity and consensus on what constitutes green or social finance. “If we define green and social finance based on our own interpretations, they will vary from one department to the other even within an organisation,” he says. “That's why we need a regulatory framework that properly defines green and social taxonomies.”
ESG and sustainable finance ecosystem accelerator
Putting its money where its mouth is and taking public-private partnerships to the next level, Mashreq has presented its considerations and recommendations to strategic government and semi-government stakeholders, along with potential partners, to launch an ESG (environmental, social and governance) accelerator. Named the UAE ESG and Sustainable Finance Government Ecosystem Accelerator, it envisages achieving complex, multi-organisational objectives within a shorter time frame of six to nine months. “The key enablement comes from the leadership, enabling regulatory and legislative changes, business processes, re-engineering, digital transformation, etc.,” AlShimmari explains.
The ecosystem accelerator serves as a platform not only to discuss concerns and challenges in a timely manner – be it clarifications about taxonomies or the need for integrating them in some cases – but also address the high risks financial institutions face in green and sometimes social finance.
The accelerator offers us a platform to openly discuss how we as banks can reduce our risk and increase our engagement as a financial institution by providing more instruments to address SDGs and enable funding that the government needs, and at the same time reduce our risk through incentives, rewards or tax rebate in the case of loss.
“Usually when there is high risk, there is high profitability. However, in sustainable finance there is high risk but without high profitability,” he says. “The accelerator offers us a platform to openly discuss how we as banks can reduce our risk and increase our engagement as a financial institution by providing more instruments to address SDGs and enable funding that the government needs, and at the same time reduce our risk through incentives, rewards or tax rebate in the case of loss. We need to sit down and talk like the European Union did. When banks incur loss in projects that address certain SDGs earmarked as high priority by the government, then they should be authorised to deduct their losses from their corporate tax.”
This way banks wouldn’t play it safe and limit themselves to financing low-risk projects while shying away from high-risk priority projects. Without these kind of open discussions with the government and regulators, AlShimmari says, sustainable finance will remain relatively expensive, especially in the current economic environment where everyone is seeking a lower interest rate.
He also believes the ecosystem accelerator can help the UAE achieve SDGs while improving its competitiveness score and ranking in sustainability. “Committing to Dh1 trillion in sustainable finance by 2030 requires embracing profound changes in culture, organisation’s DNA, and along with everyone’s support and engagement,” AlShimmari explains.
Sustainability goals
In alignment with advancing sustainable finance, Mashreq has already pledged Dh110 million to the Dh1 trillion the UAE plans to mobilise in sustainable finance by 2030. Last year, Mashreq joined the Science-Based Targets initiative (SBTi) to adopt the Corporate Net-Zero Standard, one of the highly regarded corporate standards for sustainability, which offers a clear and credible road map to carbon neutrality.
“Setting our net zero trajectory, working in-house and with our obligors to develop a sustainable finance policy and framework, as well as an ESG enterprise framework – which is a work in progress – reflect our commitment to achieve sustainability in its broader definition,” he says.
Dh 110 million
Mashreq's contribution to the Dh1 trillion the UAE plans to mobilise in sustainable finance by 2030In a span of one year, Mashreq was also able to lower its Sustainalytics ESG rating from severe risk to medium risk, a jump of 300 positions, underlining its commitment to ESG.
“The ESG rating is a complex process and requires not only business or risk engagement, but also the participation of a whole ecosystem, from responding to complaints and addressing privacy, cybersecurity concerns to emissions, environmental policy and building practices,” explains AlShimmari.
“Achieving these objectives is a challenging task – you are changing the corporate DNA, you are disrupting and putting in place new practices with sustainability as the North Star. And changing the culture requires continuous support and enforcement from the leadership. It is a learning experience and we are working hard to make significant progress.”
As ESG regulations continue to evolve rapidly and become increasingly complex, AlShimmari predicts that within five to ten years, these regulations, along with factors such as carbon taxes, will significantly disrupt the financial products ecosystem. This disruption will likely compel unprepared players to exit the market.
However, Mashreq is well on its transformational journey, with sustainability making its way into all aspects of business and sustainable performance indicators (SPIs) set up to measure progress. “These sustainable performance indicators are reflected in the management business objectives, from a governance side on all the groups including business and supportive functions. We follow a lean agile approach, collaborating in a decentralised manner to achieve our objectives. Although it’s challenging, it’s a key enabler for our change in DNA.”
Building on this commitment, Mashreq has launched Climb2Change, a pioneering global initiative that integrates its comprehensive ESG initiatives and sustainable finance commitments. Climb2Change is designed to drive impactful environmental and social change on a global scale, aiming to foster collaboration and scale up ESG efforts, advancing towards a sustainable and greener future.
An ecosystem that creates unicorns
As human-centricity remains AlShimmari’s focus, he advocates for including AI and other emerging technologies in the taxonomies for sustainable finance covering the 17 SDGs and 169 targets. The integration has the potential to spearhead advanced innovation and create a unicorn ecosystem in the UAE. “Now, how many Microsofts, Alphabets or Open AIs can we start in a garage or home with the DED regulation enabling opening a small company without a physical address? The UAE is already well-recognised for being one of the best global destinations for startups – a status it has gained and maintained consistently over the years, attributed to the leadership’s vision and wise directives. This reflects in its #1 ranking globally as per the Global Entrepreneurship Monitor report 2024. The UAE ranks third globally in attracting AI talent, but most of the investment is coming from the government and semi-government entities. We (corporates and banking institutions) need to collaborate with stakeholders to further boost the entrepreneurial mindset and help the SME ecosystem come up alongside unicorns.”
For that to become a reality, AlShimmari admits, many aspects of regulation, technology readiness levels and other factors will also have to be fleshed out. These efforts should set the country on the path to truly becoming a hub of innovation.
