The MENA region is one of the most severely affected by the impacts of climate change due to several geographical reasons. This reality has created a sense of urgency for economic change in most countries across the region, especially as GCC nations make substantial progress in building resilient and sustainable non-oil economies. In this changing paradigm, new opportunities are surfacing for investors and financial institutions across a diverse range of industries, including renewable energy, infrastructure development, digital technologies, e-commerce, and fintech. This may be a vast spectrum of sectors, but they all have in common the increasing influence of sustainable finance.

The concept of responsible business has very quickly registered in the public consciousness as a corporate necessity, which explains why the prospects for sustainable financing are so promising. In turn and within the context of climate change, sustainable financing has become a defining element to meet consumer preferences, which, bolstered by regulatory efforts, has created a new reality where the most sustainable investments are those built around environment, social and governance (ESG) principles, and where consumers can drive change with their choices.

As a result, the emergence of ESG investing has rapidly changed how investors think and the associated 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.

Financing the region’s sustainability-focused 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.

Additionally, and in a nod to the worsening issue of water security, Mashreq has also facilitated $1.3 billion in water-related projects across Egypt, India, Bahrain, Qatar, and the UAE, which will build resilience to scarcity and water scarcity-related disasters. As part of these efforts, the bank has been heavily involved in financing solutions for projects like the Abu Rawash 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 Nile River, 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.

Collaboration among stakeholders to achieve common climate goals

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, and work together to accelerate adoption of sustainable finance. This will help boost 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.

April 2023 saw Mashreq join the World Green Building Council’s (WorldGBC) Advancing Net Zero Readiness Framework as a Collaborator in the MENA region, following the bank’s decision to join the United Nations Global Compact (UNGC) initiative in August 2022. Through its involvement with both institutions, Mashreq looks to further incorporate the principles of social and environmental responsibility, integrity, transparency, and robust social and governance practices across its operations and activities.

All corporations in the financial industry have a fundamental responsibility to act as corporate citizens and lead by example. With COP28 in the horizon, now more than ever – and particularly in the UAE – a firm commitment to ESG principles will provide leading banks with a competitive advantage and set them apart from their fellow industry players. This differentiation will become crucial for the banking sector’s aims to promote sustainable business practices and encourage the adoption of sustainable financing, positioning leading banks in an advantageous position to pave the way for the acceleration of sustainable finance adoption.