ESG AND UAE BANKING
PIONEERING GREEN FINANCE REVOLUTION
UBF PLAYING A PIONEER ROLE TO ACHIEVE NET-ZERO TARGET BY 2050 UAE banks are emerging as a leader in adopting policies and regulations that are expected to strengthen green finance in coming years
U
Muzaffar Rizvi
AE Banks Federation recognises the growing importance of Environmental, Social and Governance (ESG) factors in the financial landscape and playing a pioneering role in sustainable finance to achieve net-zero goals by 2050, its top official says. Jamal Saleh, Director-General, UAE Banks Federation (UBF), said UAE banks are emerging as a leader in adopting policies and regulations that are expected to strengthen green finance in coming years. “UBF promotes integrating ESG consciousness into lending and borrowing policies. We anticipate a regulatory mandate for banks to fully integrate ESG risks into their risk management frameworks,” Saleh told Khaleej Times during an interview. He said UBF recognises the importance of addressing climate change issues and has taken steps to support the sector under the direct supervision of the Central Bank of the UAE. Excerpts from the interview: What is the opinion of the UBF about the importance of ESG policy in the banking sector of the UAE? UAE Banks Federation views ESG as a strategic imperative, not merely a compliance requirement, for the UAE banking sector. It is considered a catalyst for sustainable economic growth and a cornerstone of the UAE’s Green Agenda
2030 and net-zero 2050 goals. The UAE’s pioneering role in sustainable finance is underscored by its contribution of around 30 per cent to the region’s total green bond issuance, surpassing the global norm. At the same time, Central Bank of the UAE has established the UAE Sustainable Finance Working Group (SFWG) in 2019 and Guiding Principles on Sustainable Finance in 2021, underscoring the country’s commitment to supporting the transition to a net-zero economy. These developments reflect the deepening importance of ESG policies and products in the future profitability of UAE banks. Meanwhile, by integrating ESG considerations into their core operations, UAE banks are driving positive change. 2023 marked an unprecedented surge in the green bond market, with an alltime high of $310 billion issued in the first six months, accounting for 59 per cent of the total Global Sustainable Bond Market (GSSSB), which was expected to hit approximately $1 trillion by the yearend and accounted for 14 per cent-16 per cent of total bond issuances. UAE banks, in line with Central Bank of the UAE’s vision, are emerging as a leader in adopting policies and regulations that are expected to strengthen green finance further, driven mainly by governmental initiatives in sustainability, projects a bright future for green financing. What are the ESG risk drivers and sustainability issues in the banking sector? What steps has UBF taken for this? Climate change poses a significant risk to the Middle East and North Africa (Mena) region’s financial sector, including the banking industry. Rising temperatures threaten agriculture, energy, water resources, coastlines, and tourism, impacting banks’ loan portfolios and operational resilience. We anticipate a regulatory
knowledge sharing and collaboration on ESG best practices. We are working closely with the Central Bank to advance ESG policies within the banking sector. According to a recent Ernst and Young survey, 60 per cent of the banks surveyed said to integrate ESG into risk management. There is still room for improvement, and UBF is committed to driving further advancements in this area.
We are committed to providing strategic guidance, facilitating knowledge sharing, and advocating for supportive policies to empower banks in their sustainability journey.” Jamal Saleh,
Director-General, UAE Banks Federation
mandate for banks to fully integrate ESG risks into their risk management frameworks. UBF recognises the importance of addressing these challenges and has taken steps to support the sector under the direct supervision of the Central Bank of the UAE. As the sole representative of UAE banks, we provide a platform for
UAE national banks have been reported to have committed to supporting sustainability projects worth Dh1 trillion by 2030. What can you tell us more about this commitment? How is the UBF supporting these banks? The UAE banking sector’s pledge to allocate Dh1 trillion to sustainability projects by 2030 is a historic step towards the UAE’s green economy goals. This ambitious commitment underscores the sector’s recognition of its pivotal role in driving sustainable development. We are privileged to have played a pivotal role in mobilising the banking community around this shared vision. We are committed to providing strategic guidance, facilitating knowledge sharing, and advocating for supportive policies to empower banks in their sustainability journey. Our efforts have focused on enhancing banks’ capabilities to assess ESG risks, develop sustainable products, and measure environmental impact. S&P Global Ratings predicts sustainable bond issuance is projected to reach nearly $1 trillion in 2024, indicating a global surge that likely includes significant contributions from the UAE. UAE banks have responded by expanding their green financing portfolios, issuing green bonds, and developing innovative ESG-linked products to meet the evolving needs of customers and investors. For example, Masdar raised $750 million in a debut sale of green bonds in 2023, signalling increased investor in-
The UAE banking sector’s pledge to allocate
Dh1 2030
trillion to sustainability projects by is a historic step towards the UAE’s Green Economy goals. terest in renewable energy projects. We are confident that through continued collaboration and strategic initiatives, the UAE banking sector will achieve the Dh1 trillion target and solidify the nation’s position as a global leader in sustainable finance. How is the UBF ensuring that banks in the UAE are implementing ESG standards and policies? UBF recognises the growing importance of ESG factors in the financial landscape. It is actively driving its integration into UAE banks’ operations by encouraging green financing and bond issuance, promoting sustainable practices across the value chain, and supporting carbon footprint reduction. In collaboration with the Central Bank of the UAE and other stakeholders, we are developing a robust ecosystem and accountability standards while fostering a culture of sustainability within the banking sector. Key initiatives include aligning with the central bank’s regulations, developing ESG performance benchmarks, providing training programmes for bank staff, and facilitating peer-to-peer learning, all aimed at contributing to the UAE’s transition to a low-carbon economy and building a resilient financial system. See Next Page
EMPOWERING
A SUSTAINABLE FUTURE
ADIB is a leading Islamic bank, committed to developing new sustainability-linked financing solutions to help customers transit to a low carbon economy and tackle key environmental challenges. Recognised for our innovation, customer services and digital capabilities, we support our customers’ business needs, equip people with the skills they need and financially empower our younger generations.
ADIB is your life long partner.
Abu Dhabi Islamic Bank Public Joint Stock Company is licensed by the Central Bank of the UAE. Terms & Conditions apply.
adib.ae