“The preservation of our planet is not only a moral duty, but also an economic necessity.” Founding Father, Sheikh Zayed.
As the world grapples with the challenge of meeting net zero targets and working towards making this transition just and inclusive, ESG excellence has never been more relevant to business and investment decision making. We intend to examine some key themes that relate to ESG: including climate action, sustainable finance, and the role of private banks and wealth funds to accelerate impact of ESG investments.
Sustainability is not a new focus for the UAE, and the country is leading the way in the Middle East in terms of climate action. As far back as 2015, the UAE played an important role in the dialogue around the United Nations Sustainable Development Goals (SDGs) at the Rio+20 Summit. It was also the first nation in the Gulf region to sign the Paris Agreement and recently announced a Net Zero by 2050 strategic initiative, making it the first Middle East and North Africa (MENA) nation to do so.
In 2023, Abu Dhabi Global Market (ADGM) implemented its sustainable finance regulatory framework. It comprises the region’s most comprehensive ESG disclosure requirements and a regulatory framework for funds, discretionary managed portfolios, bonds and sukuks designed to accelerate the transition of the UAE to net zero greenhouse gas emissions and ESG focused investments. The UAE’s net zero commitment is crucial ‘to attract inflows from global capital markets as investors increasingly seek ESG-compliant investments’, states Ahmed Jasim Al Zaabi, Chairman of ADGM.
ADGM aims to use its position as a leading international financial centre to foster Sustainable Finance (SusFin) activity within the UAE region. The ADGM’s Sustainable Finance Agenda is built around four pillars:
To put these pillars into action ADGM established the Sustainable Finance Working Group (SFWG).
The SFWG is co-ordinated by the Financial Services Regulatory Authority (FSRA) of ADGM to support the development of sustainable finance in the UAE and facilitate regulatory co-operation amongst the UAE authorities on practices and frameworks that can enable the finance sector to deliver on this goal. In a recent statement, the SFWG outlined three key sustainable finance objectives:
The SFWG also includes 7 guiding principles for accelerating sustainable finance, which include a strong focus on embedding climate related financial risk considerations into every aspect of corporate governance, strategy and disclosures. These principles work in a similar way to the popular Task Force on Climate-Related Financial Disclosures (TCFD) recommendations focused on helping the UAE create a virtuous circle for accelerating ESG and climate action within the UAE economy.
The UAE Banks Federation (UBF), a professional representative body of member banks operating in the UAE is leading the sector in enabling sustainable finance, Last year the UBF and its affiliated national financial institutions pledged to mobilize over 1 Trillion AED ($270 Billion) for sustainable finance by 2030. According to UBF, presently the banks issue approximately 70% of all ESG financing in the UAE and are therefore key stakeholders in helping accelerate sustainability activity and finance.
As early as 2017 one of UBF’s members, First Abu Dhabi Bank (FAB) became the first UAE bank to sign up to UN Global Compact. Other UBF banks have formed other partnerships such as with Climb2Change global initiative, to help better integrate ESG objectives and milestones.
“There is a $4 Trillion annual shortfall in sustainable finance globally. Clients, regulators and banks need to collaborate towards a greener future. We all have a part to play. At FAB, we are firmly committed to playing a leading role in the green transition,” says Sarah Pirzada Usmani, MD and Head of Loan Capital Markets & Sustainable Finance, First Abu Dhabi Bank (FAB)
By 2030, emerging markets and developing economies will require US$2.4 Trillion every year to address climate change. In 2023 the President of COP28, Sultan Al Jaber announced a four pillar ‘Action Agenda’ for the UAE guided by a single north star of keeping a 1.5°C warming target within reach, stating that the phase down of fossil fuels is “inevitable”. The four pillars are:
To accelerate progress on this agenda, the UAE announced a $30 Billion fund (ALTÉRRA) for global climate solutions on the second day of COP28. With this commitment, the UAE fund became the world’s largest private investment vehicle for climate change action and will aim to mobilize US$250 Billion globally by 2030.
According to a recent report by Standard Chartered, 93% of investors in the UAE are interested in climate investing. Similarly, there is also a growing appetite in the region from family offices and high-net-worth individuals (HNWIs) for sustainable investments.
Recently, Dubai recorded an 18% growth in its HNWI population in the post pandemic era and secured first position in the MENA region. This is partly due to the recent announcement by the Dubai International Financial Centre (DIFC) of the opening of the first Global Family Business and Private Wealth Centre in the world as part of its strategy to double the sector’s contribution to the Emirate’s economy by 2030.
The new wealth centre is expected to bring family businesses and Ultra-HNWIs — people with a net wealth of $30 Million or more — from the UAE and the broader MEASA region and beyond to DIFC at a time when investors are looking for a safe, secure and stable investment environment.
With $80 Trillion expected to be transferred by baby boomers to their children over the next two decades, it’s a unique opportunity for the UAE to lead on impact investing and climate action, all catalysed by private banks and private wealth.
