Cairo- Decypha: Using financial tools, such as loans, insurance, stocks, private equity and bonds in environmental projects, is known as green finance. This financial trend has continued to grow over the years providing people with eco-friendly projects as climate change issues have gained global attention.
The enactment of the Paris Agreement on climate change in 2015, where 190 countries were committed to combat global warming, and the foundation of the Green Finance Study Group by the G20 nations in 2016 has driven more attention to the green finance sector in recent years. As a result, green bonds as a tool have obtained an important position in that sector.
Green bonds are a financing tool for organizations and government entities for establishing green projects, including environment, renewable energy, energy efficiency, waste management, clean transportation and water sustainability.
Global green bonds market
Started in 2008, the first green bond issuance was performed by the World Bank, where $8.5 billion have been issued in 18 currencies to date.
A couple of years after, the breakthrough of the green bonds was witnessed in 2014 when the issuance of bonds has relatively surged in terms of growth, Henrik Raber, Global Head of Capital Markets in Standard Chartered Bank told Gulf News in October.
Green bonds are growing globally; from the beginning of 2015 an estimated $86 billion in green bonds have been issued, with $42 billion of them issued in 2015 only, Raber said.
Reviewing the geographical distribution of green bonds issuance, Raber added that western issuers have dominated the market so far, as they currently account for 38% of the total market volume since 2007; however, Asian countries such as China and India have made significant progress in the green bonds regulatory framework, allowing them to lead the green issuance movement by a wide margin.
Green bonds can serve the benefits of both issuers and investors, as it helps issuers diversify their business objectives through pursuing green and sustainable projects as well as meeting their corporate social responsibility targets, according to Raber.
On the other side, investors perceive green bonds as an opportunity to invest in green business at “near commercial prices,” he said, adding that 80% of these bonds march medium and long-term investors’ preferences.
Throwing higher hopes for that market, the International Finance Corporation (IFC) announced in April the investment of $325 million in a green bond fund. It has partnered with European asset manager Amundi to raise $2 billion from other investors for the fund. According to IFC’s Chief Executive, Philippe Le Houérou, this move has created a market for green bonds where none existed.
Green bonds introduced to the Middle East
The green finance in the Middle East was early advocated by Jordan as it is provided through public entities such as the Jordan Renewable Energy and Energy Efficiency Fund (JREEEF) besides the commercial banks and international finance institutions, according to Ruba Al Zu’bi, CEO of Jordan-based green business association EDAMA.
In spite of that, the UAE was home to the first green bond issuance in the region. The National Bank of Abu Dhabi (NBAD), the largest Emirati bank by asset value, has issued in March a $587 million five-year green bond, listed at the London Stock Exchange.
Aiming at financing eco-friendly projects, NBAD stated in a press release that the issuance came in line with the Dubai Declaration, which took place in October 2016 in cooperation with the UAE Ministry of Climate Change and Environment to promote green economy.
The NBAD green bonds was said to encourage other issuers in the Middle East, Henry Shilling, an analyst at Moody’s in New York told Financial Times in April.
Other governments in the emerging markets were reported to be considering green bond issuance, including Morocco, Shilling added.
Potential of green bonds in the region
The international oil crunch has forced some Middle East countries, notably GCC countries to diversify their economy, which created a chance for the solar and clean energy sectors.
Fuelling the existing demand for infrastructure for these projects, green finance and bonds have a market slot, said Aaron Bielenberg, founder and Director of the Clean Energy Business Council (CEBC) in MENA in a recent study.
Potential issuers in the Middle East include government, utility providers, the World Bank, Arab Monetary Fund, IMF, IFC, Islamic Development Bank, Arab Bank for Economic Development in Africa and Arab Fund for Economic and Social Development
Green financing is said to be one of the current priorities in the UAE, “the nation has developed policies and regulatory frameworks to motivate the private sector for a bigger participation in the green projects,” said Hussain Khansaheb, Director of Green Development at Ministry of Climate Change and Environment in November.
Benefiting from the global green bonds market acceleration, the Middle East markets might have a great potential in the green bonds, especially after the formation of the IFC fund and the expansion in renewable energy investment in the region. The question, however, remains how soon will financial institutions take active steps?
By Doaa Farid
