UAE Banks Spearhead Shift To Green Finance, KPMG-Emirates NBD Report Shows

The UAE's banking sector is playing a crucial role in supporting the country's shift towards a greener economy, according to a report by KPMG and Emirates NBD. The report, titled "Eco-financing the future: The role of UAE banks in climate transition," highlights how UAE banks are financing a variety of projects, including renewable energy, energy efficiency, sustainable transportation, and green buildings. These banks are also developing new sustainable finance products such as green loans, sustainability-linked bonds, and transition financing. They are leveraging Islamic finance products to support these investments and access a wider pool of funds.

The report emphasizes the importance of banks in addressing climate change. Charles Batchelor, Partner in Accounting and Finance at KPMG Lower Gulf, states that as climate change escalates, the banking sector has a crucial role in steering towards a more resilient world. He commends the innovative pathways forged by banks as they embrace their responsibility to support environmentally sustainable practices.

Emirates NBD, one of the leading banks in the UAE, actively channels investments into green projects and integrates eco-friendly practices throughout its operations. Vijay Bains, Group Chief Sustainability Officer and Group Head of ESG at Emirates NBD, highlights the bank's contribution to creating a more sustainable future, both locally and worldwide. This aligns with the UAE's National Determined Contributions under the Paris Agreement and demonstrates the financial sector's commitment to the nation's ambitious climate goals.

In line with these commitments, the UAE's financial sector pledged to mobilize AED 1 trillion in sustainable finance by 2030. The UAE Banks Federation announced this pledge during Finance Day at COP28, a global event organized by the Central Bank of the UAE (CBUAE) to combat climate change. The KPMG-Emirates NBD study reveals that banks are working closely with their clients to reduce their environmental impact and improve their social performance. They provide ESG advisory services and help clients develop and implement sustainable business strategies.

The UAE has emerged as a leader in the Middle East, contributing approximately 30% to the region's total bond issuance, surpassing the global norm. This trend, driven by governmental sustainability initiatives, indicates a promising future for eco-financing in the country.

Following the UAE's hosting of COP28, banks are reaffirming their commitment to sustainability by incorporating environmental criteria into their lending policies and ensuring comprehensive ESG reporting. However, several internal and external considerations still need to be addressed. These include recognizing potential opportunities, understanding the risks associated with resource and relationship dependencies, and navigating new regulations and reporting requirements.

Banks also face the challenge of greenwashing, where the environmental credentials of investments are overstated or misleading. This poses a significant threat to the banks' reputation and the integrity of their sustainable finance portfolio.

To further support the country's transition to a greener economy, financial institutions in the UAE need to reallocate their investments from traditional high-carbon sectors to green technologies and sustainable businesses. In developed markets, banks are closely monitored based on their lending to oil and gas sectors and Scope 3 carbon emissions reported by the entities they finance. These evaluations can impact credit ratings and ESG ratings, influencing their ability to raise financing. Banks will need to find ways to extend financing across a wider transition without increasing their risks.

Overall, the UAE's banking sector is leading the way in sustainable finance, supporting the country's efforts to combat climate change and create a more sustainable future.