BrazilUAE banking sector taking more initiative in sustainability
The banking sector will play a crucial role in facilitating the UAE’s shift towards a more sustainable economy. With established net-zero goals, banks are working towards ways to put these plans into action.
According to a report from KPMG and Emirates NBD, banks in the UAE are becoming influential catalysts for change in the GCC region by spearheading green finance projects and embedding climate-conscious practices into their fundamental operations. For example, ESG has become a major part of banks’ investment strategies.
“Like banks across all financial hubs, UAE banks are now providing financing for a wide range of projects, including renewable energy, energy efficiency, sustainable transportation, and green buildings,” say the authors.
“Banks are also developing new sustainable finance products, such as green loans, sustainability-linked bonds, blended finance and transition financing, while leveraging Islamic finance products to support this investment and to enable access to a larger pool of funds.”
The influence of last year’s COP28 summit on the attitude of UAE banks towards ESG commitments cannot be understated. Uptake towards sustainability in the GCC financial world has been relatively slow, but COP28 did a lot to push UAE banks to openly adopt environmental criteria into their lending policies.
One area specifically that banks have been putting focus on is transition finance. This is the area of sustainability finance that provides critical funding for projects that may not be 100% green themselves, but are a stepping stone in moving towards a more sustainable model. This can include things like carbon capture and storage and hydrogen energy.
Other areas of focus for UAE banks when it comes to sustainable finance projects include things like green bonds and loans, ESG-linked loans, sustainable investments funds, and carbon trading.
These types of projects can have a big positive impact. They help to expand renewable energy, encourage energy efficiency by creating an incentive structure, and overall can help to raise awareness.
Multiple UAE banks have been preparing ESG reports for a number of years already, and are now in the process of issuing their Taskforce on Climate Related Financial Disclosures (TCFD) report. The TCFD is designed to help organizations better disclose climate-related risks.
The UAE – along with much of the rest of the Middle East – has been on a steady trajectory towards reducing its reliance on fossil fuels. Diversifying the economy into areas like finance, tourism, and tech has been a major policy initiative. The UAE set a goal to reach net-zero emissions by 2050.
