Investors are asking more about sustainability as green products go mainstream
Products like green bonds are becoming more mainstream and investors are asking more and more questions about sustainability as capital markets look towards the transition to net zero.
An LSEG summit, Moving Towards a Net Zero Transition, UAE Perspective, heard from banks and businesses who said discussions around sustainable finance are entering the mainstream.
The pre-COP28 event was held in Abu Dhabi ahead of the UAE’s hosting of UN climate summit later this year.
Jennifer Chammas, regional head of sustainability, HSBC Commercial Bank, said it is now expected that banks have more appetite to extend sustainable finance than non-sustainable finance.
Citing Refinitiv data, she said 10% of the capital markets in 2022 were made up of bonds, and 10% were sustainable or green bonds.
“Those products are becoming more and more mainstream, the standards are developing and evolving because we are all learning and we are issuing,” she said.
Setting ambitious targets towards transitioning to net zero means different things for different businesses. “For a mid-market company in the UAE, it may be ambitious for them to just set targets in the first year. For a Walmart or a Nike, that is not ambitious,” she said.
While 3% of the world’s sustainable finance market is currently in the Middle East region, it is growing, she said.
Sarah Pirzada Usmani, managing director, head of sustainable, asset and project finance, for the UAE’s largest lender, First Abu Dhabi Bank (FAB) said the bank had been the first in the region to issue a green bond in 2017, is the first in the region to have a net zero by 2050 commitment, and is to lend $75 billion in sustainable finance by 2030.
“That is a huge commitment considering the GCC has been dependent on hydrocarbons for the last hundred years,” she said, adding: “It is not about switching the oil and gas sector tap on and off in the region up until 2030, it is our role as financiers to support that transition.”
Highlighting the aviation sector, which combined with tourism contributed 13.3% of the UAE’s GDP pre-pandemic according to Reuters reports, Usmani said: “We are actively seeking out projects in sustainable aviation fuel, because it can reduce emissions by up to 60-80% depending on the fuel blend. Right now, there are a lot of investments happening in testing those technologies.”
As an example, she cited the bank recently closing on a project in Saudi Arabia, NEOM Green Hydrogen Project, as green hydrogen can be a source for sustainable aviation fuel. “That is something the UAE can play a very active role in developing,” she said.
Fazil Abdul Rahlman, group vice president, sustainability, and climate change, of Abu Dhabi National Energy Company (TAQA), said the company was receiving pressure from investors in recent years, particularly from fixed income investors, towards showing commitment to sustainability.
“There used to be one or two questions on sustainability, but even finance people are facing more and more questions, they have expectations. What we hear is what are you doing about ESG? Investors will ask what percentage of your bonds will be green?”
