Saturday 15 June 2024

How ESG investing made sustainable finance mainstream

DUBAI, March 6, 2023

Disproportionately exposed to the environmental, social, and economic effects of climate change, it is critical that nations across the Middle East and Africa accelerate sustainable financing through ESG principles, says Joel Van Dusen, Group Head of Corporate & Investment Banking, Mashreq. 
Countries in the Middle East and North Africa (MENA), which is also the fastest-growing region in the world, are disproportionately affected by the impacts of climate change. 
These interconnected dynamics have created a sense of political urgency and economic impetus for change. Now, as GCC countries build their non-oil economies, investors face new opportunities across a vast spectrum of industry sectors, from renewables to infrastructure development, digital technologies, e-commerce, and fintech. This may be a diverse range of sectors, but they are all being increasingly influenced by the same defining factor: sustainable financing.   
The prospects for sustainable financing are promising because the concept of responsible business has very quickly registered in the public consciousness as a corporate necessity. That is why, within the context of climate change, sustainable financing has become a defining element to meet consumer preferences. This – buoyed by regulations – has created a new reality where the most sustainable investments are those built around environment, social and governance (ESG) principles, and where consumers vote with their feet. 
For these reasons, the emergence of ESG investing has rapidly moved the needle on how investors think and the choices they make. In particular, the ESG spotlight has led to an emphasis on the importance of investment decisions that mitigate exposure to climate risk, comply with current and future regulations, and limit any potential reputational damage. This is why banks and investment firms are devising green and sustainable strategies, incorporating them into their business strategies and aligning their funding mechanisms to their sustainable development commitments.
Climate resilience & long-term vision
We are already seeing how such mechanisms are delivering success – partly because they incorporate very long-tenure deals. To accelerate the adoption of sustainable financing opportunities, Mashreq has facilitated $15.5 billion of sustainable finance and adaptation-related investments in the past two years across Egypt, India, Bahrain, Qatar, and the UAE. Many of these countries are accelerating adoption by advancing green bonds and Sukuk issuances. 
Egypt was the first country to issue a sovereign green bond in MENA in 2020, issuing $750 million of five-year bonds. The sovereign green bond was seven times oversubscribed, leading to a 50% upsizing of the transaction to its $750 million ultimate issuance level. The investor response gives a view into the opportunity and appetite for green financing in the MENA region – and an insight into how seriously investors are focusing on the social and economic threats from climate change.
Following the catastrophic floods in 2022 in Pakistan, and in a nod to the worsening issue of water security, Mashreq also facilitated $1.3 billion in water-related projects, which will build resilience to scarcity and adapt to the climate impacted changes.  As part of these efforts, the bank has been heavily involved in financing solutions for projects like the Abu Rawah Wastewater Treatment Plant in Egypt, among many other water-related programs. This investment will benefit more than eight million people, mainly in the Giza Governorate, the Eastern side of the River Nile, and the Cairo-Alexandria Desert Road. The project has also generated 1,600 jobs, 20% of which are for women, delivering wider positive social impact.  Mashreq also led the Sustainability Linked Loan (SLL) for Nogaholding in Bahrain, which, at $2.2 billion, was the largest SLL in the region. For Mashreq, the long-term view is ambitious – it has set itself a target to reach $30 billion in sustainable financing by 2030. 
Partnering with policymakers 
However, such financing targets are only part of the picture. To further boost its impact, the banking sector must partner closely with its clients, advising them on transition strategies, managing risk and then helping them access appropriate sustainable financing for their needs – across CAPEX, OPEX or even retraining their workforce and raising awareness amongst employees. 
Partnerships with policymakers have also become important – not only regionally but at a global level. This year’s COP28 in the UAE – following COP27 in Egypt in 2022 - will provide a new opportunity for governments and the public and private sectors to collaborate to streamline details on national and regional finance frameworks. This boosts clarity, which is integral to strengthening investors’ appetites and confidence. Looking ahead, all banks have a responsibility to build their sustainable financing solutions within the context of national, regional, and international regulations, standards, and policies. 
Across MENA, alignment with national and regional frameworks - such as the UAE’s climate goals – as well as global environmental initiatives, must become a moral and ethical imperative for the banking sector – mainly as this is an important route to accelerating sustainable finance. 
In November 2022, Mashreq announced that it had joined the United Nations Global Compact (UNGC) initiative – a voluntary leadership platform for the development, implementation, and disclosure of responsible business practices. Through its involvement with UNGC initiatives, Mashreq looks forward to further incorporating the principles of social and environmental responsibility, integrity, transparency, and robust social and governance practices across its operations and activities. 
Acting as responsible corporate citizens and leading by example will set prominent banks apart from their counterparts and give them a substantial competitive advantage, which is essential for the banking sector’s aims to promote sustainable business practices and encourage the adoption of sustainable financing. This is precisely why, as one of the UAE’s leading private banks, Mashreq is well positioned to pave the way for making sustainable financing mainstream. -TradeArabia News Service


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