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ADCB’s green bond framework to raise AED500m for projects supporting ESG objectives

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The first green bond issuance by Abu Dhabi Commercial Bank (ADCB), priced at $500 million, could pave the way for other commercial banks to follow suit. 

  • ADCB’s AED 500 million green bond, 3.8 times oversubscribed, is part of its commitment to deploy AED 35 billion in green finance by 2030.
  • The green bond issue demonstrates the UAE’s increasing support of green financial initiatives, which could support sustainable development across the broader MENA region.
  • While showing support for sustainable measures, it will put increased pressure on the relationship with institutions that are directly financed by fossil fuels.

Abu Dhabi’s banks are stepping up their efforts to help the United Arab Emirates (UAE) reach its net zero ambitions, with the ADCB having priced its first green bond for issue on September 14, 2022.

ADCB plans to direct the resulting proceeds towards low carbon initiatives, including  renewable energy developments, green buildings, sustainable water and wastewater treatment, clean transportation, energy efficiency, and pollution prevention and control.

The bank claims its green bond framework, a prerequisite to green and sustainable finance issuance, is aligned with the UN sustainable development goals (SDGs) and based on the International Capital Markets (ICMA) Green Bond principles. 

Abu Dhabi banks support green financing initiatives in the UAE

Green financing initiatives are have increasingly been embraced by banks in the UAE, with green bond issuances accompanied by ambitious lending targets, with a study sponsored by sovereign investor Mubadala showing that 86% of business decision makers in the UAE placed a high priority on sustainable investing.

Some of the takeaways that may inform sustainability policies in the UAE, and guide its banks’ financial activities, include the increasing importance placed on social factors in the run up to 2030.

This has been particularly acknowledged within the UAE due, in part, to its dominant Islamic values.

High returns on investment, however, are still considered the priority in ESG investment, with Mubadala highlighting liquidity and performance as the biggest challenges to ESG considerations.

Despite this prioritisation of financial returns, Abu Dhabi’s banks are increasingly engaging in support of the UAE’s green financing initiatives.

ADCB’s sustainable finance portfolio, currently valued at around AED 7.7 billion, includes financing for renewable energy projects, green loans, and sustainability-linked loans. Among the latter is an AED 700 million loan to Etihad Airways, which lists female empowerment, ethics and integrity among loan KPIs. 

Abu Dhabi’s largest lender, to which ADCB comes in second, the First Abu Dhabi Bank (FAB), has set its own target to lend $75 billion in sustainable projects by 2030, and was the first to issue green bonds in the country. 

UAE has financial clout to drive MENA sustainability ambitions

The UAE is looking to take the lead in driving sustainability in the middle east Africa (MENA) region, with each of the four emirates setting interim targets to reach its net zero goal by 2050.

With AED1 trillion ($272 billion) in assets under management (AUM), the UAE’s capital will indeed be instrumental in driving the region’s sustainability ambitions.

The UAE has, for example, already funded one of the world’s largest solar farms. The farm, Noor Abu Dhabi, boasts a capacity of 1.2 gigawatts and comes as part of the country’s commitment to investing AED 600 billion towards clean and renewable energy.

Abu Dhabi’s interim targets for 2030 include sourcing 50% of its energy from renewable and clean sources, following slightly short of Dubai’s targeted 75%.

To help reach its target, ADCB has already committed to financing the development of a 950 MW solar plant in Dubai, demonstrating the spreading of its influence to neighbouring jurisdictions.

ADIA, ADIC, Mubadala – entities controlling banks and driving government agenda

The Abu Dhabi Investment Authority (ADIA) is the world’s fourth largest sovereign wealth fund, with $829 billion in assets under management.

ADIA’s purpose is to invest the emirates’ wealth in a globe-spanning, diversified portfolio, with developmental investments in the region being left the responsibility of the Abu Dhabi Investment Council (ADIC) and Mubadala.

According to a Harvard study on sovereign wealth funds, ADIA receives the bulk share, around 70%, of the country’s oil and gas revenues. ADIC, which became part of Mubadala in 2018, receives the remainder.

Mubadala and ADIC are focused on domestic development, with the former owning controlling interests in most of the country’s major banks, including ADCB and FAB, as well as the National Insurance Company and the emirate’s official airline, Etihad.

Exposure to these governement and public sector entities has already been identified by ADCB as one of the biggest risks to its portfolio.

While the UAE and Abu Dhabi’s vast financial resources could help fund its ambitious sustainable development plans, projecting a positive outlook, its institutions face scrutiny on many fronts that may detract from any significant follow-through.

Global financial crime watchdog, the Financial Action Task Force (FATF) has added the UAE to its ‘grey’ list, placing it among several others for which additional money-laundering monitoring is enforced. 

The Human Rights Watch (HRW) has also cited the UAE for many violations relating to human rights, including alleged abuse of those migrant workers, women’s rights, freedom of expression in addition to incidences of arbitrary arrest, detainment and deportations.

HRW also points out that 85% of the UAE’s population lives along coastlines, where they are increasingly vulnerable to the impacts of climate change.

Yet, as one of the world’s top 10 producers of crude oil, the emirate has ongoing plans for fossil production and use, contradicting its sustainability pledges and supposed alignment with the goals of the Paris agreement.

These revelations suggest that the success of ADCB’s green bond issuance could be subject to the agenda of institutions that are directly financed by an industry that directly contradicts its goals.

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