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Over 125 delegates joined us on 4 February in Dubai at our inaugural event dedicated to sustainable finance in the MENA region.
While there hasn’t been as much deal flow of green or sustainable finance so far from the region, in comparison with Europe or Asia, there is no shortage of enthusiasm for sustainability and certainly no lack of talent or desire to transform the region’s economy into a sustainable one.
Of course the region has some unique challenges - its historic reliance on hydrocarbons and the elevated political risk that is found in some parts of it.
But the impression that speakers and delegates gave at the Forum is that it will not be long before we start to see consistent deal flow from the region - whether in conventional or Islamic finance form - and we will start to see the region’s investor base play a much bigger role in buying international green or sustainable finance.
All the building blocks are in place - governments are increasingly committed to sustainability, as evidenced by the creation of ministerial-level committees, working groups and sponsorship of sustainable projects, whether they be sustainable cities, renewable power or social projects around training, education and employment, for example.
Meanwhile, most of the local banks are on board and many of those that have not issued green or sustainable debt so far are setting up sustainability-linked programmes.
The international banks, having seen the flourishing of green or sustainability markets in Europe, Asia and to some extent in North America, are keen to help it flourish here in MENA, keen to service their clients and build out their own sustainability expertise.
Local companies, as we heard earlier from John Arentz at Majid Al Futtaim, are finding that “what is your sustainability strategy?” is the first question they are being asked when talking to local and international investors. So they are being forced to change the way they approach markets, but crucially also how they conduct their own business and operations.
So the sustainability penny has dropped in the MENA region. As Sabrin Rahman from HSBC mentioned, “this is the future, there is no denying it”. Maybe, as Raji Hattar from Aramex said, we need “more stick and less carrot” to make it happen. Transition bonds will surely play a part in this region as Sam Mirza from Standard Chartered Bank argued.
On this positive note, Euromoney would like to thank all of our sponsors, speakers and delegates, without whom the event would not be possible. In particular our thanks go to the DIFC, HSBC and Standard Chartered Bank. We look forward to welcoming you next year at what is sure to be a bigger and even more popular event as the concept of sustainability and the role of sustainable finance embed even further into the region.
For sponsorship enquiries for 2021, please contact Victoria Behn: email@example.com
For all speaking enquiries for our sustainable finance events, please contact Sara Leech: firstname.lastname@example.org
2020 Photo Gallery
2020 KEY TAKEAWAYS
No more business as usual
The recognition that society, the economy and financial markets have to change is now gaining widespread acceptance in the Middle East and North Africa. There are still pioneers and laggards, of course, but the debate is changing fast.
“Business as usual is no longer an accepted approach. This is what we practice here in the UAE,” said Qais Al Suwaidi, assistant expert in climate change management at the UAE’s Ministry of Climate Change and Environment, in his keynote address.
MENA seeks to be global leader in sustainable finance
Countries across the region are committed to the Paris Agreement and Sustainable Development Goals. This is also feeding into specific efforts on sustainable finance. The UAE for example is keen to accelerate private sector investment. To that end, 32 UAE-based financial institutions have signed the Dubai Declaration on Sustainable Finance, which commits them to the best international standards, to contribute to fostering opportunity for society and to financing sustainable businesses.
It is also launching a Climate Lab to incubate innovative start-ups.
“There is an enormous opportunity for the UAE and Saudi Arabia if you can create the right ecosystem,” said Mohieddine Kronfol, chief investment officer of global sukuk and MENA fixed income at Franklin Templeton Investments, though he said “The region has a lot of catching up to do.”
Al Suwaidi said: “We look forward to seeing this region among the global leaders in sustainable finance.”
Region has challenges — and opportunities
MENA faces particular difficulties, when it comes to sustainability. Its historic dependence on fossil fuels is obvious, but it also faces a daunting need to create jobs for a growing, young population. There are high rates of air pollution and water stress, and questions about food supply and sea level rise as climate change worsens.
Asked whether governments in the region were getting the urgency, Ellen Hamilton, lead urban specialist at the World Bank, answered in her keynote interview: “Yes, but I don’t think anyone is doing enough yet.”
But there are big opportunities too — notably solar power, an abundant free resource which can be exploited with the addition of land, money and a supportive regulatory framework.
Hamilton said the region’s 300m young people “could be viewed as a liability but are also hugely important. This young generation is highly aware of the importance of the broader sustainability agenda.”
Lack of data and standards
Sustainable financing and investing are impeded by lack of knowledge about what is sustainable, and how to compare different companies’ activities and business models.
“There is a huge data problem,” said Farnam Bidgoli, head of sustainable bonds in debt capital markets EMEA at HSBC. “Asset managers are reliant on information such as buildings certificates and regulatory frameworks that they are used to. The onus therefore in this region is on the issuer, which is hugely time-consuming.”
If global ESG disclosure standards could be set out, this would make things easier for all parties. “It would mean issuers wouldn’t need to spend all their time drafting sustainability reports just to gain the trust of investors in Europe,” said Bidgoli.
The Sustainability Accounting Standards Board is developing such a system; in November 2019 the Dubai Financial Market published an ESG Reporting Guide for listed companies, suggesting 32 metrics and indicators.
Time to reform subsidies
A major obstacle to making the region sustainable is that subsidies are still geared towards supporting unsustainable consumption. Fossil fuels and water are subsidised in many countries. This reduces the incentive for people to use these resources more efficiently. By creating an un-level playing field, it also disadvantages new, cleaner technologies such as renewable energy. This means not enough of the right investments are being made now, that would enable economic players to become more sustainable — and save money. Several speakers called for subsidy reform.
Pricing advantage needed
Banks trying to encourage companies and other issuers in the MENA region to engage in specific green financings find that many are not interested if the instrument does not offer a financial advantage. “You have one group of pioneers who believe in it,” said Sarmad Mirza, executive director of debt capital markets Middle East at Standard Chartered. “A different group will do it, but ay ‘where are the results?’ You need a pricing advantage.”
Green bonds have long offered issuers a price advantage, but it has taken time for banks to be comfortable presenting this to clients. In the Middle East, the shortage of green transactions from local issuers means this argument is still difficult to make, though it is getting easier.
Yasser Gado, treasurer of the Islamic Development Bank, said “We couldn’t evidence a difference in green pricing between our green and conventional sukuk, but we did see a difference in how investors look at it.” Investors in Europe were more interested in the sustainability angle than those in the Middle East.
Enel, the Italian electricity company, introduced a new approach to this problem in September by issuing sustainability-linked bonds, which carry a coupon step-up if Enel fails to hit its target to generate 55% of its electricity from renewable sources by the end of 2021. Investors liked the
structure so much they bought the bonds an estimated 10bp-20bp tighter than the yield they would have required on ordinary Enel debt.
In a keynote interview, Alberto De Paoli, Enel’s chief financial officer, said that part of the point of the instrument had been to get investors to give Enel the pricing benefit that, as a sustainable company, it deserved. “Debt at a lower cost is needed to achieve big results,” he said.
Both De Paoli and Mirza called for a diversity of instruments to be used — Mirza highlighted transition bonds.
Rafik Selim, principal economist for the SEMED region at the European Bank for Reconstruction, pointed to an impact bond the EBRD had co-invested in last year, to promote youth employment in Palestine, by providing professional training for 1,000 people.
Islamic principles align with sustainability
Islamic financial institutions are already used to applying ethical standards when they invest. The alignment between these principles and sustainability aims was discussed by Gado at the Islamic Development Bank, Ali Adnan Ibrahim, global head of sustainability and social responsibility at Al Baraka Banking Group, and John Arentz, head of treasury at Majid Al Futtaim. Belinda Scott, head of corporate sustainability at First Abu Dhabi Bank, asked them whether Islamic financial institutions would start using the Sustainable Development Goals as a framework.
Ibrahim said the SDGs “provided a perfect agenda for development” and that Islamic institutions saw “huge growth” in this area. He said Al Baraka was not against labelled debt but did not see it as essential — he suggested a blue sukuk might be issued to finance water projects.
Ambition: no excuses for weak action
While some companies and capital markets players are still more interested in paying lip service to sustainability than in engaging wholeheartedly, there is much to be learnt from the leaders. Chief sustainability officers from two companies that are members of the Dubai Sustainable Finance Working Group made this clear.
Ibrahim Al Zubi of Majid Al Futtaim, the privately owned shopping malls company, said his firm had set a target of becoming net positive for carbon and water by 2040, as well as embedding circular economy principles. The company has already worked out a plan to get there, which will include investing in solar energy both at its own sites and elsewhere.
The motivations included “brand reputation, long term profitability, corporate citizenship, cost savings”.
Raji Hattar at Aramex, the freight forwarding company, is conscious that transport contributes 14% of global greenhouse gas emissions, and that clients now expect suppliers to establish their sustainability credentials when pitching for new business. The company has already cut emissions by nearly 40% and is aiming to make all its fleet worldwide 100% electric, while investing in solar farms to generate clean power. It has also given university scholarships to more than 1,800 young people in four countries.
“I have seen a massive shift in adoption and integration of sustainability,” said Sabrin Rahman, regional head of sustainability for HSBC, who has been working in the field for 10 years.
Central to achieving this goal, said Hattar, was that everyone should take responsibility. As he put it: “Every person in the company is a sustainability officer.”
Give us regulation!
Capital markets players do not always welcome regulation. But in the area of sustainability, they are thirsty for it.
Jean-Philippe Bonsaudo, private sector partnership manager at the World Green Economy Organization, highlighted “regulation and legislation” as the most important factors needed to
accelerate sustainable finance.
One of the most important areas where regulation could help is in obliging companies to disclose more about their environmental, social and governance activities — and making investors disclose,
The European Union is introducing legislation of this kind, using its Taxonomy of Sustainable Economic Activities as the disclosure standard. Sarmad Mirza at Standard Chartered argued that the Middle East should follow international standards, perhaps with some modifications to make them fit local conditions, rather than creating its own.
But there is also scope for regulation to drive action more rapidly on the ground in the real economy. Raji Hattar at Aramex pointed to when Kenya, Uganda and Tanzania banned plastic bags — industry just had to cope with the change, and did. He summed it up by calling for “the stick more than the carrot”.