UAE banks pioneer green finance revolution

Dubai, UAE, 29th April 2024: As sustainable finance grows globally and regionally, the UAE's banking sector is playing a vital role in supporting the country's transition to a greener economy, according to a new report jointly authored by KPMG and Emirates NBD. “Eco-financing the future: The role of UAE banks in climate transition” outlines how UAE banks are now financing a wide range of projects – including renewable energy, energy efficiency, sustainable transportation, and green buildings – while also developing new sustainable finance products, such as green loans, sustainability-linked bonds, blended finance and transition financing; leveraging Islamic finance products to support this investment and enable access to a larger pool of funds.

Charles Batchelor, Partner in Accounting and Finance at KPMG Lower Gulf, commented on the report, saying: “As climate change escalates, the banking sector has a crucial role to play in steering the course toward a more resilient world. The KPMG-Emirates NBD study explores the innovative pathways forged by banks as they embrace their responsibility to support environmentally sustainable practices, with supportive efforts by the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) 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.”

Vijay Bains, Group Chief Sustainability Officer and Group Head of ESG at Emirates NBD, said: “The global shift towards sustainability has seen banks, particularly in the UAE, play an increasingly crucial role. At Emirates NBD, we are actively channeling investments into green projects and integrating eco-friendly practices throughout our operations. This allows us to contribute significantly to creating a more sustainable future, both locally and worldwide. This shift in focus is aligned with the UAE's National Determined Contributions (NDCs) under the Paris Agreement, indicating a broader financial sector commitment to the nation's ambitious climate goals. The insights from the Emirates NBD and KPMG study clearly demonstrate how institutions like ours are not just participants in this movement but are shaping its direction and impact.”

The UAE’s financial sector pledged to mobilize AED 1 trillion in sustainable finance by 2030; as announced by the UAE Banks Federation during Finance Day at COP28 last year. 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.¹

According to the KPMG-Emirates NBD study, 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.

The UAE has 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 eco-financing.

Following the UAE’s recent hosting of COP28, banks are reaffirming their commitment to sustainability through investment strategies, incorporating environmental criteria into their lending policies, as well as ensuring detailed and comprehensive ESG reporting. Multiple banks have been preparing ESG reports for a number of years and are now in the process of issuing their Taskforce on Climate Related Financial Disclosures (TCFD). These reports help public companies and other organizations disclose climate-related risks and opportunities more effectively through their existing reporting processes.

However, several internal and external considerations still need to be addressed such as recognizing potential opportunities, understanding the risks associated with dependencies on resources and relationships, and navigating the challenges that may arise from new regulations and reporting requirements. Furthermore, banks are facing a critical concern regarding the risk of greenwashing in the funds they invest in. Greenwashing occurs when the environmental credentials of investments are overstated or misleading, posing a significant threat to the banks’ reputation and potentially compromising the integrity of their sustainable finance portfolio.

Given the pivotal role of the UAE’s banking sector in supporting the country’s transition to a greener economy, financial institutions will need to reallocate their investments from traditional high-carbon sectors to green technologies and sustainable businesses. In other developed markets, financial institutions 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 both their credit ratings and their ESG ratings, directly influencing their ability to raise their own financing. Access to pools of green capital tends to be tightly ring-fenced, meaning that qualifying projects and lending are limited. Banks will need to work out how to open the gates without increasing their risks in order to extend financing across the much wider transition which their customers will increasingly demand.

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About KPMG International Limited

KPMG is a global organization of independent professional services firms providing Audit, Tax and Advisory services. We operate in 147 countries and territories and have more than 219,000 people working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients. For more details about our structure, please visit http://kpmg.com/governance

About Emirates NBD

Emirates NBD (DFM: Emirates NBD) is a leading banking group in the MENAT (Middle East, North Africa and Türkiye) region with a presence in 13 countries, serving over 9 million active customers. As at 31st March 2024, total assets were AED 902 billion, (equivalent to approx. USD 246 billion). The Group has operations in the UAE, Egypt, India, Türkiye, the Kingdom of Saudi Arabia, Singapore, the United Kingdom, Austria, Germany, Russia and Bahrain and representative offices in China and Indonesia with a total of 858 branches and 4,450 ATMs / SDMs. Emirates NBD is the leading financial services brand in the UAE with a Brand value of USD 3.89 billion.

Emirates NBD Group serves its customers (individuals, businesses, governments, and institutions) and helps them realise their financial objectives through a range of banking products and services including retail banking, corporate and institutional banking, Islamic banking, investment banking, private banking, asset management, global markets and treasury, and brokerage operations. The Group is a key participant in the global digital banking industry with 97% of all financial transactions and requests conducted outside of its branches. The Group also operates Liv, the lifestyle digital bank by Emirates NBD, with close to half a million users, it continues to be the fastest-growing bank in the region.

Emirates NBD contributes to the construction of a sustainable future as an active participant and supporter of the UAE’s main development and sustainability initiatives, including financial wellness and the inclusion of people of determination. Emirates NBD is committed to supporting the UAE’s Year of Sustainability as Principal Banking Partner of COP28 and an early supporter to the Dubai Can sustainability initiative, a city-wide initiative aimed to reduce use of single-use plastic bottled water.

Media contact:
Samreen Iqbal
Samreen.iqbal@bpggroup.com