The Middle East — at the core of global ESG development?

  • Oman’s green power investment. The country’s utility buyer OPWPC plans to set up MIS Solar IPP 2025, the country’s fourth solar photovoltaic (PV)-based independent power project (IPP), to boost power demand within the Main Interconnected System (MIS) that supplies power to the upper northern half of the country
  • Abu Dhabi’s SWF Mubadala announces the creation of a standalone ESG Unit. The USD284bn wealth fund has been concentrating on assessing ESG-related risks and the potential for current and future investments

ESG issuance in the Middle Eas

ESG issuance in the region has taken the form of senior unsecured conventional bonds and sukuk. The ESG-compliant nature of underlying assets in sukuk portfolios differentiates them from conventional issuances.

ESG bonds — an emerging instrument

  • The First Abu Dhabi Bank (FAB) was the only bank from the region to issue bonds twice in the Swiss franc (CHF) market in 2021; it issued the region’s first green bond in 2017
  • The FAB’s first CHF green bond issuance was a CHF260m 5-year bond in January 2021; it priced its second CHF200m 5-year bond at 0.1475%
  • It was the first MENA bank to issue a green bond and has financed over USD10bn in sustainable projects
  • It was recognised by MSCI, with its rating upgraded to AA from A, defining FAB as an “ESG Leader”
  • APICORP raised USD750m from its first green bond, and more than 80 institutional and sovereign investors placed orders totalling USD2.2bn
  • Emirates NBD Asset Management signed the United Nations Principles for Responsible Investment (PRI) network, further enhancing its commitment to responsible investment
  • Banks in Qatar have also been focusing on ESG issuance
  • In 2020, QNB Group issued the first green benchmark bonds from Qatar; this was the largest green issuance by a financial institution in the MENA region
  • The Saudi National Bank and Riyad Bank issued sustainability-linked sukuk worth USD750m each
  • Riyad Bank’s sukuk was the first sustainability-linked additional tier 1 (AT 1) sukuk in the world. The funds are planned to be used to offer Shariah-compliant funding and refinancing for several sustainable projects
  • The Kingdom of Saudi Arabia is now the largest market for ESG sukuk, worth a total of USD7.9bn
  • In March 2021, the Islamic Development Bank of Saudi Arabia issued its USD2.5bn sustainability sukuk
  • ESG sukuk issuance totalled USD2.4bn in 1Q 2022. The largest ESG sukuk issuance during the quarter was USD900m from Bahrain-based Infracorp, the infrastructure investment arm of Gulf Finance House (GFH)
  • Some regulators in the region are also working to include ESG bonds and sukuk in their capital market laws. To further strengthen the local debt market, the Qatar Financial Centre (QFC) created the GCC’s first sustainable sukuk and bonds framework
  • Due to the governments’ desire to invest heavily in the renewables sector and businesses’ incorporation of ESG principles in their operations and finance, ESG investment opportunities are rapidly emerging in GCC markets and changing the region’s financial climate
  • ESG sukuk issuance by GCC-based entities, which began in 2018, reached 6bn or 59% of cumulative global issuance up to 1Q 2022

ESG — a significant consideration in M&A

The ESG strategy underpins higher deal valuations in the Middle East and is thought to be a positive signal of long-term revenue growth. In a recent global poll of 281 M&A professionals, Bain and Company found that 65% of the respondents anticipated an increase in their own company’s emphasis on ESG over the next three years. According to the survey, 68% of the executives in the consumer products sector believe ESG will increase share by enhancing their brand image to adapt to shifting customer tastes.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Acuity Knowledge Partners

Acuity Knowledge Partners

57 Followers

We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/