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Since Imperial Bank, the UAE’s inaugural bank, opened its doors in 1946, the banking sector has undergone considerable changes. Fast forward to today and customers have an enormous range of banks to choose from. However, with the changing times, banking needs have also evolved. Therefore, from green Sukuk bonds to preferential lending rates on environmentally-friendly vehicles, sustainability is the keyword for the future of banking in the UAE.

“The banking landscape in the UAE has experienced a substantial transformation characterised by a noticeable shift towards sustainability, especially over the last two years,” says Ayesha Abbas, Managing Director and Head of Consumer, Private and Business Banking, Standard Chartered, UAE. “This evolution is a result of a variety of factors, including a heightened global awareness of climate change, increasing social consciousness, and a growing recognition of the role financial institutions play in shaping a sustainable future.”

Ayesha Abbas, Managing Director and Head of Consumer, Private and Business Banking, Standard Chartered, UAE

With the recognition of how important a role that banking plays in sustainability, banks in the region are undergoing a paradigm shift.

“Sustainable banking has evolved from a mere trend to a fundamental pillar of business for banks in the UAE. This transition signifies a broader global paradigm shift in which financial institutions are acknowledging and actively responding to the challenges of environmental sustainability and social responsibility,” says Abbas.

Mobilising green investments

“In the UAE, banks are strategically embedding sustainability into their core business strategies, surpassing regulatory compliance and aligning with the evolving expectations of clients who are increasingly prioritising the broader impact of their financial decisions. At Standard Chartered UAE, we recognised the substantial potential for UAE investors to channel over $100 billion into sustainable investments. Consequently, we elevated our offerings to UAE investors by incorporating a diverse range of sustainability-linked investments, encompassing equities, bonds, mutual funds, Exchange Traded Funds, and structured products, all with accompanying Environmental Social and Governance (ESG) ratings,” explains Abbas.

More banks than ever are keen to boost their ESG ratings and doing what they can to make a change. For example, Emirates NBD is committed to supporting the UAE’s Net Zero 2050 pledge. It is also the principal banking partner of COP28.

Vijay Bains, Group Chief Sustainability Officer and Group Head of ESG, Emirates NBD

Since sustainable banking might be a new concept to some, initiatives are being put in force to encourage customers to follow such banking practices.

“In support of the UAE’s Net Zero by 2050 Strategy and the UN Sustainable Development Goals, we have been supporting green mobility and the adoption of electric vehicles since 2017. Currently, as part of our Green Auto Initiative and the UAE Government’s vision, we offer preferential rates on our Green Auto Loan. Furthermore, we launched our Sustainable Finance Framework in September this year, which allows for the issuance of green and sustainable debt instruments to finance projects to support the transition to a low-carbon economy,” says Vijay Bains, Group Chief Sustainability Officer and Group Head of ESG, Emirates NBD.

Over the past few years, there have been several frameworks put in place to build a greener banking sector in the UAE, both through banks and the government.

Bains says, “The UAE is actively promoting a competitive and green economy by prioritising sustainable finance to effectively attract investments. At the federal level, a Sustainable Finance Framework is under development to guide stakeholders in mobilising private capital for sustainable investments. The Abu Dhabi Global Market’s Sustainable Finance Agenda, published in January 2019, outlines a roadmap for establishing a sustainable finance hub in the UAE. In addition, the UAE has adopted the Guiding Principles in Sustainable Finance, encouraging financial firms to integrate ESG considerations. Over 70 entities have embraced the Dubai and Abu Dhabi Finance Declarations to foster a dynamic, sustainable finance sector. The country is witnessing the development of various green finance instruments, including the Dubai Green Fund, green bonds, and the Emirate of Abu Dhabi’s Green Bond Programme launched in 2020.”

As sustainable banking gains traction, banks play a crucial role in advising clients on transition strategies, risk management, and providing tailored sustainable financing solutions.

Ahmed Abdelaal, Group Chief Executive Officer at Mashreq

“At Mashreq, we understand our responsibility in this domain and are devoted to forging a sustainable future for our clients and communities, aligning our financial services with the principles of sustainability and ESG,” says Ahmed Abdelaal, Group Chief Executive Officer at Mashreq.

Mashreq has embraced sustainable banking by implementing new products and bolstering capacity building with internal stakeholders through initiatives such as staff training. “We have a comprehensive ESG reporting framework, aligned with GRI and SASB standards, and regulatory reporting requirements, corroborated with third-party assurance aligned with AA1000AS standards,” says Abdelaal.

Mashreq is developing a sustainable financing framework to facilitate the issuance of green, social, or sustainable bonds and Sukuks among other instruments collectively known as sustainable finance instruments.

“This framework showcases the bank’s intention to raise sustainable financing to support sustainable projects and initiatives and enables the bank to continuously engage with stakeholders and refine its understanding and integration of sustainability throughout its organisational fabric. We also work to integrate ESG criteria into lending and investment processes via credit policy,” says Abdelaal.

Facilitating access to financing is a crucial part of the energy transition, and Mashreq remains committed to directing capital flows to projects that advance this objective. “As part of these efforts, we have designed and structured a wide range of sustainable finance deals including the largest sustainability-linked loan (SLL) in the region’s history with organisations like Bapco Energies, supporting their commitment to sustainable financing solutions. This deal is testament to the work that Mashreq does in incentivising our clients to make progress on their own transition journeys and engage stakeholders with relevant Sustainability Performance Indicators (SPIs) and ambitious improvement targets,” says Abdelaal.

Banking institutions across the UAE, are keen to provide more sustainable banking solutions. At Standard Chartered, Abbas says they pioneered the region’s first conventional sustainable account and the first sustainable Islamic account. Meanwhile, just last month, Abu Dhabi Islamic Bank (ADIB), announced that they had raised $500 million via a green Sukuk offering, making it the world’s first ever green USD Sukuk issued by a financial institution.

“The decision to issue the world’s first USD-denominated green Sukuk issued by a financial institution was rooted in our dedication to addressing climate change and advancing sustainable solutions that contribute to a low-carbon economy,” says Mohamed Abdelbary, ADIB Group Chief Financial Officer. “This move is not only a testament to ADIB’s commitment to environmental responsibility but also highlights the compatibility between Islamic finance and sustainability, setting a new standard for innovation and ESG integration,”

Mohamed Abdelbary, Chief Financial Officer, ADIB Group

The response to the Sukuk has been highly successful, which was evident in its over-subscription.

Abdelbary says, “The exceptional market response to our green Sukuk underscores the universal appeal of sustainable banking products. With an oversubscription rate of 5.2 times and interest from over 100 global and regional investors, the success of this issuance demonstrates the growing demand for financial instruments aligned with environmental and social responsibility. We believe that this momentum reflects a shift in market sentiment, emphasising the crucial role of sustainable finance in shaping the future of the financial industry.”

Rising Demand

There’s a growing appetite among UAE consumers for sustainable financial products and services. “Mashreq’s commitment to sustainable banking, as reflected in its Q3 2023 financial results, has resonated positively with clients seeking out such products. Mashreq’s focus on sustainable financing solutions, green loans, and green bonds has attracted clients who are increasingly conscious of the environmental and social impact of their financial activities. The bank’s efforts to align its financial resources with the goals of the Paris Agreement and implement sustainable financial products have garnered favourable reactions from clients looking to engage in responsible and ethical banking practices,” says Abdelaal.

Some recent examples of deals which highlight growing interest from clients in these sustainable products and services include the amendment of the $2.2 billion deal signed in 2020 with Bapco Energies to increase it to $2.5 billion, the largest sustainability-linked loan (SLL) in the region to date. Other notable deals that Mashreq has led on include Tecnimont SLL of $874 million, and Bahrain Steel’s debut SLL of $450 million. “These deals are testament to the growing appetite in the market for sustainable finance products and reinforce our commitment to facilitating access to financing as a crucial role that we play in supporting the energy transition,” says Abdelaal.

However, it is not only the banks that are putting their weight behind green banking. In 2022, DIFC became an institutional partner of the Sustainable FinTech Alliance, which was launched by the MENA Fintech Association (MFTA). Members of the Alliance commit to undertaking credible and sustainable strategies that underpin the UN Sustainable Development Goals and net-zero targets. Thus, FinTechs are also committing to a greener future in banking.

Scaling up sustainable finance sector

“FinTechs play a pivotal role in addressing environmental and social challenges both globally and locally in the UAE, where payments, access to credit, and investments strongly underpin commercial and consumer activities in the nation. As an industry, we have strong relationships with both the private and public sectors, so can leverage a unique partnership approach to drive positive change. The Sustainable FinTech Alliance is an example of the UAE’s leadership in climate action as the world convenes for COP28 in Dubai,” says Kevin Kilty, CEO and Founder, of Hubpay.

Kevin Kilty, CEO and Founder, Hubpay

The UAE is certainly making strides ahead as it changes the core of the banking industry. Undoubtedly, further progress will be made over the coming years and it will be interesting to see how the future unfolds. It certainly looks positive and Abbas from Standard Chartered gives her opinion on what we can expect as we look ahead.

“The trajectory of the banking landscape in the UAE suggests a future marked by a more profound integration of sustainable practices. This evolution may encompass the mainstreaming of ESG considerations into financial decision-making processes, the innovation of new green financial products, and a heightened emphasis on corporate social responsibility. Customers are anticipated to prioritise financial institutions that demonstrate a genuine commitment to sustainability, therefore influencing banks to become not just financial intermediaries but also the active agents of positive change. This transformation is indicative of a broader paradigm shift wherein banking becomes a force for good, contributing meaningfully to a more sustainable future,” says Abbas. ●

The growth of sustainable finance

Sustainable finance is growing at an exponential rate with a report by the management consulting firm, Arthur D. Little, stating that green and sustainable finance had grown by 32 per cent last year.
According to the UAE Banks Federation (UBF), public data suggests that six major banks had dedicated over Dh190 billion ($51.8 billion) in green financing for projects in renewable energy, waste-to-energy and green technology by the end of 2022.
The UBF, which has a dedicated ESG steering committee, also report that banks and financial institutions in the country have initiated the issuance of green Sukuk and bonds, with a total market value of approximately Dh62.4 billion ($17 billion) in recent years.
Such an increase in green funding is in line with the guidelines of the Central Bank of the UAE’s Sustainable Finance Working Group (SFWG), which encourages the adoption of sustainable finance at a national level. As future frameworks are put in place, these figures could just be the beginning.
— H.J.F.