Choose Site

Newsletter

The Middle East: An Oasis of Green Finance

Empowered

September 15, 2021

The promotion of green finance and investment in sustainable projects continues to be a key policy of the government of the United Arab Emirates (UAE). The UAE government (with its related entities) has traditionally been the initiator of the financing of sustainable investments and initiatives; however, this is increasingly changing as the private sector becomes more involved. Given the current policies of the UAE government and the other governments within the Gulf Cooperation Council (GCC), it is extremely likely that green finance will continue to grow throughout the Middle East and North Africa (MENA).

UAE Green Agenda

In an effort to diversify away from its dependence on hydrocarbons and reduce its vulnerability to oil prices, the UAE launched the UAE Green Agenda and the Investment Support Scheme in 2015 to, among other aims, increase the amount of investment in sustainable projects and initiatives. A key issue initially faced by the UAE government and highlighted in previous reports issued by the UAE Ministry of Environment and Water was the limited involvement of the private sector in supporting green initiatives.

Private-Sector Involvement

In recent years, however, the UAE’s green finance sector has seen increasing involvement from entities in the private sector, including local entities such as First Abu Dhabi Bank PJSC (FAB) and Masdar and international banks such as Standard Chartered Bank (SCB).

FAB

FAB is the largest UAE bank by assets and was the first bank in the GCC to commit to lending, investing, and facilitating $10 billion toward sustainable projects over a 10-year period. Additionally, FAB has led UAE banks in the region in relation to green financings by being one of the few banks to issue green bonds and to do so in multiple currencies. This is exemplified by the following financings:

  • The issuance of a green bond in the MENA region for $587 million by FAB
  • The arranging of a $75 million green revolving facility for Masdar
  • The issuance of a green private placement for 750 million Hong Kong dollars (approximately $96.3 million) by FAB
  • The issuance of a green bond for 260 million Swiss francs (approximately $284.8 million) by FAB
  • The participation in the $1.3 billion green sukuk issuance of the Saudi Electricity Company

SCB

SCB has committed to providing $40 billion of project financing services for infrastructure that promotes sustainable development, and $35 billion of project financing, M&A advisory, and debt-structuring services for renewables and clean-tech projects by 2024. In the UAE specifically, SCB has been involved with the following financings:

  • Acted as coordinator for the $600 million green sukuk issued by Majid Al Futtaim Sukuk Ltd
  • Led the coordination of the $2 billion joint conventional and Islamic revolving credit facilities for DP World, which was the first green loan in the Middle East
  • Led the $561 million financing of Shuaa Energy 3 for the fifth phase of the Mohammed Bin Rashid solar park in Dubai
  • Structured a $600 million sustainability-linked transition sukuk for Etihad Airways, which was the first of its kind

The Path Ahead

Recent reports show that the UAE government (with its related entities) remains focused on promoting the expansion of the green finance sector in the UAE and the wider region. The UAE government seeks to make sustainability a mainstream concern in financial decisionmaking and incentivize financial institutions to offer more sustainable products. To this end, the UAE government’s Energy Strategy 2050, which aims to increase the contribution of clean energy in the total energy mix from 25% to 50% by 2050 and reduce the carbon footprint of power generation by 70%, provides an important opportunity for investment in green finance. The Energy Strategy 2050 will require a significant pipeline of renewable projects, which would lend itself to the issuance of a sovereign green bond by the UAE government. The fact that renewable projects require the physical assets to be created also lends itself well to the further issuance of green sukuks, as Shari’a principles often require the existence of identifiable assets. The use of sukuks will allow borrowers to receive funding from Islamic investors, as has been done in nations such as Indonesia and Malaysia.

Within the wider GCC, Saudi Arabia in particular has been aggressive in procuring renewable projects as part of the government’s Vision 2030, which aims to have renewable sources account for 50% of Saudi Arabia’s energy production by 2050. Saudi Arabia’s Private Investment Fund has been tasked with developing 70% of Saudi Arabia’s renewable energy pipeline for the next decade and recently arranged a consortium for the financing of the 1,500 MW and $3.4 billion Saudi riyal (approximately $900 million) Saudir PV solar project. Investment in green projects in Saudi Arabia has also been buoyed by the projects aimed to entice tourists, such as the Red Sea Development in Western Saudi Arabia. The Red Sea Development Company raised 14.12 billion Saudi riyals (approximately $3.77 billion) in the form of a green loan for the construction of 16 new hotels at the Red Sea Development.

The green finance sector in the GCC has made significant progress with the increased involvement of the private sector, yet still remains in its infancy. Recent data from Gulf News has indicated that green and sustainability-linked debt issuance in the MENA region reached $6.4 billion in the first half of 2021, exceeding the total for the whole of 2020, which was $4.7 billion. With the current market trends and the initiatives of the various governments in the region, the sector and value of investment in sustainable projects will likely continue to see exponential growth in the future as green finance becomes a fixture of financing in the region.