As we reflect on Earth Day, the annual event on April 22 to demonstrate support for environmental protection. We at Mingzulu wanted to shed a light on the official theme for 2023 - Invest In Our Planet. As catalysts in the FS ecosystem, we a big believers on setting goals with purpose with our founder community and established industry players. This years theme certainly closely aligns with our discussions, values and future direction as we advance forward into 2023+.
Mingzulu are proud to have industry Pioneers such as Nikoletta Kovacs (lead author of this thought piece) collaborating with our founder team, driving the ESG and specifically the Green - Sustainability agenda in the Financial Services (FS) sector. As we continue engage & support the regions FS ecosystem, its key that founders, entrepreneurs - as well as established leading FS institutions transition to the next chapter and new future of financial services by setting goals that also focus on the future health and well being of the planet.
The Middle East is one of the regions in the world most vulnerable to climate change and banks can play a vital role in mitigating its impact.
Not only does global warming threaten the region’s water supplies and food production systems, these can lead to greater social inequalities and unrest. With temperatures rising twice as fast in the Middle East compared to the rest of the world, diversifying economies away from oil and gas and reaching net zero goals, as outlined in the Paris Agreement, is imperative.
In addition, with COP28 being held in the United Arab Emirates this year – for the first time ever in the Middle East – there has never been a better time to seize the environmental, economic and social opportunities that the green transition offers.
Indeed, in 2021 the UAE became the first Gulf state to commit to net zero emissions by 2050 through clean and renewable energy sources through its AED600bn ($163bn) Net Zero Strategic Initiative in support of a national pathway outlined at COP27 in Egypt.
Countries including Saudi Arabia, Oman and Bahrain have also announced net zero targets but we still have a long way to go globally – and public-private collaboration will be key.
Indeed, there are already some exciting sustainable projects under way in the region. Edinburgh Business School at Heriot-Watt University’s Dubai campus, for example, has signed a memorandum of understanding with the MENA Fintech Association to work together on initiatives relating to fintech and sustainability. Meanwhile, UAE-based start-up Wahaj Solar has developed and patented concentrated solar power technology which could be used for long-term solar energy storage and green hydrogen production, among other use cases.
Banks can finance the path to net zero!
Banks and other financial institutions have a vital role to play in reaching net zero not just by making their own operations more sustainable, but also by financing the path in helping others meet their own environmental, social and governance (ESG) targets.
Several of the region’s banks are already leading the way. First Abu Dhabi Bank – the largest in the UAE – was the first in the Middle East and North Africa (MENA) to commit to a target of net zero emissions by 2050. It is also the firstbank in a Gulf state to be a member of the UN-convened Net-Zero Banking Alliance.
Meanwhile, Dubai-based Emirates NBD has already signed a range of sustainability initiatives including signing a memorandum of understanding for Honeywell Forge Connected Services on energy efficient building technologies and digital innovation, and a collaboration with Microsoft on workplace transformation to help reach net zero.
An additional $230 billion a year must be mobilised each year in the region to achieve UN Sustainable Development Goals (SDGs). This investment gap highlights why changes to the architecture of the financial system and mobilising both public and private sector finances towards more sustainable investments is so important.
Here are five ways banks (and wider FS sector players) can help the Middle East reach net zero:
1) Emission reductions and carbon offsetting
Not only should banks seek to reduce carbon emissions within their own operations, they should also seek to reduce their “financed emissions”, as outlined by the Net-Zero Banking Alliance, which represents 40% of global banking assets. This means banks and financial institutions must commit to transition their emissions from their lending and investment portfolios to align with a net-zero pathway. Carbon offsetting – buying carbon credits to make up for the greenhouse gases it has emitted – can be a valuable tool but it must be supplementary to additional attempts to reduce emissions and other sustainability initiatives.
2) Green banking products for retail customers
Banks can also support their customers in reducing their own emissions on a practical level by offering banking products such as green car loans to encourage purchases of electric or low-emission vehicles, as well as green mortgages and home modernisation loans. Meanwhile, offering green investment products, bonds or sukuk enables individuals to invest their money in projects that focus on environmental or social issues. Over two-thirds of consumers are interested in sustainable banking products globally, with most bankers expecting this to be a high-growth area in the future, meaning it also makes good business sense for banks to offer such services.
3) Financial literacy and financial health advisory
Most customers want to be sustainable, but many don’t know where to start. Banks can help by helping improve their financial literacy and providing an overview of their financial health to enable them to make more informed financial and more sustainable choices.
Financial inclusion is also increasingly a key pillar of the social aspect of many businesses’ ESG goals and is widely seen as an invaluable tool in meeting the UN SDGs. The Central Bank of the United Arab Emirates has already introduced a regulation describing general provisions for consumer education and awareness and financial inclusion to protect vulnerable consumers (Article 9 and 10 of Central Bank of UAE, Consumer Protection Regulation,circular number 8/2020).
4) Sustainable finance solutions for corporates
The Securities and Commodities Authority (SCA) of the United Arab Emirates made it compulsory for listed companies to publish annual ESG reports in 2021. Banks can play a key role in helping corporates align their finance strategy with their ESG goals and create a more sustainable business model across the value chain. According to S&P Global ratings, the Middle East is likely to see a strong pipeline of green bonds in 2023, as the regional issuers prioritize sustainable finance to fund their transition to a low-carbon economy.
Not only can banks provide sustainable finance solutions in areas such as supply chain finance, risk management and financing, they can provide invaluable support on ESG target setting, incentives and reporting – the latter of which is vital to prevent greenwashing.
5) ESG funds and investment products
Investments adhering to ESG criteria are becoming increasingly popular in the Middle East, with climate change among the top three sustainability priorities for the region’s businesses. By offering ESG funds and investments products, banks can both deliver for their sustainability-focused clients and also help mobilise the amount of capital needed to support the region’s race to net zero. Global action on climate change is no longer an option and banks will be key in supporting the Middle East’s green transition away from a dependency on oil and gas – a move that will benefit everyone.
Mingzulu are committed to sharing our insights, skills and network to support the green transition agenda in the region as we advance to #COP28 - if you’d like to engage further, contribute or indeed collaborate on your organisations journey, you can reach us on info@mingzulu.com
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