Eco-financing the future

We have witnessed significant growth in sustainable finance both globally and in the region. This is driven by an increased awareness of the environmental challenges we are faced with, as well as the mounting pressure to take action. The UAE’s banking sector is playing a vital role in supporting the country’s transition to a greener economy. Having set their own net zero targets, banks are now in the process of working out how they can implement those plans. 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. They 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.

One notable commitment is the financial sector’s pledge to mobilize AED 1 trillion in sustainable finance by 2030. This initiative was announced by the UAE Banks Federation during Finance Day at COP28 on 4 December 2023. The global event, organized by the Central Bank of the UAE (CBUAE) in cooperation with the COP28 Presidency, is aligned with the CBUAE’s strategic goal to lead sustainable finance efforts to combat climate change.

Banks are working closely with their clients to help them reduce their environmental impact and improve their social performance. This includes ESG advisory services on best practices and helping clients to develop and implement sustainable business strategies. The UAE sustainable finance working group has also been a driving force behind this collaborative effort to push the sustainability agenda forward.

2023 marked an unprecedented surge in the green bond market, with an all-time high of USD 310 billion issued in just the first six months, accounting for 59% of the total Global Sustainable Bond Market (GSSSB). This remarkable growth reflects a deepening worldwide commitment to investments that prioritize environmental sustainability. Total GSSB was expected to hit approximately USD 1 trillion in 2023, accounting for 14%-16% of total bond issuances in the year. The UAE emerged as a leader in the Middle East, contributing around 30% to the region’s total bond issuance, surpassing the global norm. This trend, largely driven by governmental initiatives in sustainability, projects a bright future for ecofinancing.

In the pursuit of a sustainable future, the global community finds itself at a critical crossroads. As we face the escalating challenges of climate change, the role of the banking sector in steering the course toward a more resilient world has never been more crucial.

The transformation towards a low-carbon economy is an opportunity to redefine the way we live, work, and interact with our planet. In this report, we explore the innovative pathways forged by banks as they embrace their responsibility to support environmentally sustainable practices. Efforts by the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) play a crucial role in positioning the UAE as a regional hub for sustainable finance.

From pioneering green finance initiatives to integrating climate-conscious strategies into their core operations, banks are emerging as powerful agents of change.