The vision for the UAE leadership to achieve net zero carbon emissions by 2050 will require a shift. However, like all other initiatives that have been announced and accomplished by our leadership, this goal too will be achieved well before 2050, says Jamal Saleh, Director General of UAE Banks Federation.
“Currently, green finance is still in the early stages in the UAE. There are a few green sukuks, and just a handful of banks who are involved in this space on a voluntary basis,” says Saleh, adding, “However, I see this scaling up considerably; similar to the growth that we have seen in Islamic banking.
“We now have seven fully fledged Islamic banks in the UAE, four of which are featured among the top 20 global banks in terms of asset size. And, the UAE has established the first Islamic bank globally. Hence, I see the same replication, with green financing taking off well in the UAE.”
We have a top-notch steering committee comprising subject matter experts, to drive our ESG endeavours, and a subpart of it will target the environment and carbon footprint
Talking about the role of the banking industry in helping the UAE achieve net zero emissions, Saleh says, “There are three main channels through which our UBF member banks will be helping the economy achieve net zero emission targets. First, by fostering and promoting green projects. Second, promoting green practices among individual customers, SMEs, suppliers, and vendors. And, last, by measuring and efficiently managing every member bank’s own carbon footprint.”
Banks are stewards of economic transformation. And, our banking industry can play a seminal role in tapping significant opportunities in the UAE, in particular, and the region, in general.
There is a growing interest in projects with a strong Environmental, Social, and Governance (ESG) angle. In the first half of 2021, green financing linked to sustainability projects in the Middle East and North Africa (MENA) reached $6.4 billion, exceeding the amount raised through the whole of the year before, according to Bloomberg’s H1-2021 Capital Markets League Table.
Shoring up support at the international level, the United Nations has convened a Net-Zero Banking Alliance that brings together a global group of banks. The group currently represents over 40 per cent of global banking assets, and are committed to aligning their lending and investment portfolios with net zero emissions by 2050. In the UAE, some UBF members have joined this UN-led alliance.
On the local level, UBF is creating a similar alliance with 10 of its largest member banks. “We have built a top-notch steering committee comprising subject matter experts, to drive our ESG endeavours, and a subpart of it will be targeting the environment and carbon footprint,” says Saleh.
The starting point of this alliance will be measuring the footprint of each member bank and drawing plans on how UBF will help its member institutions reduce the carbon footprint.
Saleh says, “We plan to publish positive achievements for our member banks in the course of time. For now, there are three or four banks who are already publishing details on their carbon emissions and footprint in their annual reports, and in due course we expect this to become common for our UBF members.
By the way, this is how corporate governance was introduced in the UAE. Initially, only a few of our UBF members volunteered and introduced a section on corporate governance in their annual reports, but eventually it has become a norm for all.”
Banks finance carbon-emitting businesses as well as projects that are linked to the decarbonisation of the economy. How effectively the industry addresses financed emissions can make a significant difference.
Saleh is highly optimistic that the UAE banking industry and UBF members would soon set a benchmark for the region and play seminal roles in helping the UAE economy achieve its net zero targets. “Once regulations are introduced, every UBF member will have a window to set their own targets, which will be done in consultation between members and UBF, of course under the oversight, directives and guidance from our regulator, the Central Bank of the UAE.
“UBF members will need to have plans on how they are going to manage the carbon footprint, and when.”
Much like credit risk scores, green finance is expected to introduce a sort of covenant for customers and eventually will have a score for carbon footprint, notes Saleh.
“Customers will be expected to reduce and manage their carbon footprint over a time period.”
According to PWC, green investments in six key GCC industries could have a profound impact by 2030, unlocking up to US$2 trillion in cumulative GDP contribution, creating more than one million jobs, and encouraging more foreign direct investment (FDI).
The upcoming COP28 meeting in the UAE, which is planned for this year, could also prove to be a pivotal moment for the banking industry in the UAE. Saleh expects a few initiatives that will pave way for green finance and set a timeline for achieving goals of net zero emissions.
“We have come a very long way in the past few years with our regulators, where everything is done hand in hand with clear regulators’ guidance and oversight. We are consulting with all our partners — our primary partner being the Central Bank of the UAE, as well as the Ministry of Finance, Ministry of Economy, Ministry of Commerce, Ministry of Justice, and many others. And, I cannot see a better opportunity for us to drive transformation in a fast way than COP28.”
The challenge for banks in the UAE, however, will be the extent of diversification within the country, and hence the scope of projects that qualify for green financing.
“There is a shift that has to happen in the UAE, says Saleh. “It will happen through awareness extended by the banking industry in educating its customers, and through the oversight and regulation by our Central Bank of the UAE. We know that they have done amazingly well on tough mandates before, and I am most confident that they will do as well on this front too.”
