OpEd: UAE banks play pivotal role in driving country’s energy transition

Published on April 22, 2024
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The UAE banking sector plays a pivotal role in driving the country’s transition towards a sustainable energy fuel mix. This includes providing crucial funding for renewable energy projects and clean technologies, with a specific focus on hydrogen production. Such support is in line with the UAE’s strategic goal of reducing emissions and achieving carbon neutrality by 2050.

UAE banks like Mashreq have demonstrated significant commitment, pledging over $50 billion to green financing across various projects in renewable energy, waste-to-energy initiatives, and green technology advancements. Within the realm of green finance, several tools are utilised, including green-oriented funds designed to promote sustainability-driven endeavours. The Gulf state, with the region’s second-largest economy, has been a trailblazer in introducing sustainability standards and principles within its banking and finance sectors.

Key initiatives such as the Abu Dhabi and Dubai Sustainable Finance Declarations in 2016 and 2019, respectively, along with the Guiding Principles for Sustainable Financing in 2020 and the National Sustainable Finance Framework in 2021, have been instrumental in shaping a robust green financial market. In addressing global energy demands, the UAE recognizes that a combination of resources—be it gas, oil, solar, wind, nuclear, or hydrogen—are essential.

Mashreq’s contribution

Mashreq, despite its longstanding history as a bank, embraces an innovative mindset, driving advancements from digital-first services for entry-level customers to supporting major corporations and wealth management needs in the region. Our mission is centred on guiding customers towards daily success, partnering with them through challenges and triumphs to fulfil financial aspirations and achieve lasting success.

We are not alone. The major national banks in the UAE are poised to bolster their commitments to green financing, aiming to surpass a collective AED1 trillion ($272 billion). Their strategic focus includes accelerating financing support for businesses transitioning to zero carbon emissions, especially in sectors facing challenges in emission reduction. Additionally, plans are underway to increase funding for innovative projects, ecosystem restoration, and biodiversity preservation efforts.

Mashreq stands out as a leading contributor to the UAE Banks Federation’s AED1 trillion pledge for enhancing green financing as we are committed to facilitating AED110 billion in sustainable finance by 2030, with substantial allocations already in motion across the UAE, Qatar, Bahrain, Egypt, and India. The UAE’s financial landscape has also embraced green sukuk and bonds, with a combined market size of approximately $17 billion in recent years. These financial instruments aim to tap into institutional funding sources that contribute to environmental protection while offering attractive returns to investors.

Increased private involvement

Advancing green finance involves not only providing financial support for green projects but also issuing green bonds and fostering eco-friendly practices among stakeholders like customers, SMEs, suppliers, and vendors. At global climate forums like the United Nations Climate Change Conference of the Parties (COP), significant agreements are being made to address climate challenges. For instance, at COP28, delegates formalised a loss and damage fund for the first time to aid vulnerable countries grappling with climate change impacts.

The UAE, through its leadership role at COP28, pledged $100 million to support these efforts, highlighting its commitment to climate action. We recognise that public-private partnerships, backed by robust financial policies, play a crucial role in directing investments towards sustainable development goals.

The financial sector’s proactive engagement in advancing green finance is pivotal for achieving long-term  sustainability objectives. Collaborative efforts between public and private sectors, coupled with innovative financing mechanisms like blended finance, present effective pathways towards a low-carbon economy.

To bridge funding gaps for achieving net-zero carbon targets, increased private sector involvement is imperative alongside government initiatives. Blended finance models can help mitigate project risks and facilitate the adoption of new technologies, especially in emerging markets. Financial institutions like Mashreq are incorporating sustainability metrics into investment processes, aligning their investment strategies with long-term environmental goals for holistic impact.

As global energy demands continue to rise, with a growing emphasis on lower emissions, investments in regions like the UAE, known for their reliability and low-carbon energy offerings, attract top-tier investors. Initiatives by entities like ADNOC and Mubadala, which have generated substantial foreign investment through strategic partnerships and financial initiatives, demonstrate the potential for using capital efficiently to unlock growth opportunities while prioritizing sustainability. These initiatives not only benefit individual companies but also have wider economic implications, positively impacting economies like the UAE, the Arab world’s second-largest economy after Saudi Arabia. 

(The author is Head of Energy Sector, Mashreq Bank. Any opinions expressed in this article are the author’s own)

Source: Zawya Projects

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