As the Middle East diversifies away from its reliance on fossil fuels, opportunities for sustainable finance abound, says Vijay Bains at Emirates NBD
Environmental Finance: As a bank based in the Middle East, how are you seeing the appetite for sustainable debt issuance evolving in your region?
Vijay Bains: The key words are diversification and growth. While renewable energy remains core, we're now seeing more investments and more issuances around water, with a number of successful blue issuances from logistics firm DP World as well as from Emirates NBD. Digital infrastructure is a big theme and we've also seen green buildings grow as well – the UAE is in the top five for green buildings globally, according to the US Green Building Council. There is growing interest in issuance linked to sustainable transport, with metro line expansions in Dubai and Riyadh, and the market is still very robust for electric and hybrid vehicles.
The region's economic transformation agenda also plays a big role – there's the Saudi 2030 strategy and Dubai's 2033 strategy as well. Broadly speaking, the economies in the region are diversifying away from fossil fuels. Last year, more of Abu Dhabi's GDP was produced from non-oil sectors than the oil sector for the first time. Sustainable debt is a natural financing instrument that is aligned with those strategies.
What's more, the investment base is deepening. Investors both within the region and outside it are showing growing demand for quality, sustainable paper from Gulf Cooperation Council (GCC) issuers.
EF: What about further afield? Where else are you talking to issuers about sustainable debt transactions?
VB: We're a regional bank so, looking around our region, we're seeing more transition finance in India, particularly infrastructure-linked finance. Sustainable bonds are becoming increasingly relevant, and India is very much on the pathway that China was on about 20 years ago, with a similar economic growth rate coupled with a robust and growing sustainability regulatory regime.
Türkiye is quite a hot market, especially this year, given that it will host COP31. There, we're seeing local corporates and financial institutions actively exploring green and sustainability-linked funding. This is particularly the case with financing linked to multilateral financial institutions, who often encourage green financing. In Saudi Arabia, we're seeing a huge amount of renewable energy, hydrogen and infrastructure as green urbanisation grows. Finally, in Egypt, the focus is very much on social financing and the financial inclusion agenda.
EF: How is the regulatory picture supporting sustainable finance in the region?
VB: We've seen Qatar integrating the International Sustainable Standards Board (ISSB) into its national reporting framework, following the path established by Türkiye, thereby ensuring companies report in a clear and transparent way, linked to auditable financial statements.
The UAE has updated its national net-zero commitments to align with Paris, and its Federal Decree Law no. 11 came into force in May, which requires companies to report on Scope 1 and 2 emissions. It's very interesting, when we've seen some countries pausing or revisiting their climate commitments, to see a country like the UAE continuing to push ahead on net zero. This shows the ambitions of the region in relation to sustainability.
In Saudi Arabia, its Capital Market Authority has introduced its Guidelines for Issuing Green, Social, Sustain-ability and Sustainability-Linked Debt Instruments, providing a framework for sustainable finance in Saudi. That is helping to make Saudi a powerhouse for sustainable finance.
We've also seen regulators and exchanges in the region provide clear rules for transparency regarding listing rules and bond prospectuses. Some of these are world-leading. And, in counterpoint to many parts of the world, we haven't seen the dilution of those standards and regulations.
Issuance of MENA sustainable bonds
EF: Talking about diversification, there is enormous investment underway in AI-related infrastructure in the Middle East. Do you see potential there for sustainable debt issuance?
VB: There has been lots of investment from property and infrastructure developers in the region, as well as technology players like G42, which is based in Abu Dhabi, and in partnership with the likes of Nvidia, Microsoft and Google.
In terms of how data centre sustainability sits alongside that, we've seen increased interest in power purchase agreements for renewable energy. This is a region where you can add a lot of new renewable energy at a relatively low cost, because the grid is new and very flexible, there's very reasonable Chinese-supplied solar equipment, and we have year-round sunshine. It's a winning recipe for low-cost renewable energy for data centres.
Water, meanwhile, is a core focus. Renewable energy is increasingly used for desalination, and it would be really welcome, not only regionally, but also globally, if we could use seawater for cooling – this would increase water efficiency.
Given higher temperatures in the region, operators need more energy for cooling. Power use efficiency is therefore going to be lower than in Europe. That means we need to judge data centre sustainability in a slightly different fashion.
EF: How are the prospects looking for transition finance in the region? What will it take to kick-start that part of the market?
VB: What we need is a GCC taxonomy to give us guidance as to what we can define as sustainable and what is transition-aligned. I say GCC because a lot of those economies have a very similar economic mix and are diversifying in a very similar fashion. If you look at their economic plans, they are already transitioning – a lot of that work is already being done, and in similar ways around the region.
Secondly, similar definitions for projects will allow international investors to come in and understand how activities are aligned with the region's transition. Currently, there's a little less comfort on transition compared with green, and some of that comfort would come from more precise definitions.
EF: You issued your first green bond in 2023. What is your approach to sustainable debt issuance at the bank?
VB: Since that first issuance, we've issued the world's first sustainability-linked loan financing bond using the International Capital Market Association (ICMA) guidance. Emirates Islamic has launched Sharia-compliant and sustainability-linked sukuk as well. We issued the largest blue-green bond in the world, again using the ICMA guidance, and the largest public blue bond in the region.
We like to innovate with every issuance, because we can showcase the strength of the entire group, from our investment banking desk, our sustainable finance division through to our treasury and funding team. We've also come to market quite regularly since 2023 – we are issuing in the context of considerable growth. As issuances are expected to grow, this has a halo effect for the group. For example, following our blue-green bond, we saw more blue financing coming through.
Annual MENA sustainable sukuk issuance
EF: What motivated the bank to issue your pioneering blue-green bond last year?
VB: One of the key themes in the region is its shortage of water, and we've arranged related issuances linked to addressing water stress in the region, but mostly in the $30-100 million range. We wanted to do a benchmark-sized issuance to show our clients and other financial institutions that you can do a benchmark-size blue-green bond. Issuing a blue-green bond gave us the flexibility to add it in some of our green assets as well.
So, for us, it's a real showcase. As a public bond, aimed at US-dollar global investors, it demonstrates our level of maturity in terms of our knowledge of the blue economy, the size of the projects we are financing, and our risk management approach to blue finance.
EF: Emirates NBD was the first bank in the region to publish a report aligned with the ISSB standards. What was the thinking behind that, and what challenges did you face?
VB: We spend a lot of time on reporting at the end of every year. There is a huge number of acronyms for the board and the senior managers to get used to. ISSB is, from a gaming point of view, the 'end boss'. It is everything we're going to consolidate up to. So for us, ISSB reporting provides economies of scale. It's also going to become the standard in every jurisdiction. What's more, it's integrated with our financial statement – that allows us to show why sustainability is important. It answers a huge number of questions from investors and regulators alike around where sustainability sits for Emirates NBD.
In terms of challenges, being the first meant that we couldn't copy from anyone else. For the same reason, it was challenging working with the assurance provider. But we're very happy on that front: they co-invested with us to develop their approach to ISSB reporting.
It turned out to be a great project, where everyone claimed success: our finance team, our legal team, our accounting team, they all did really well. And we're already seeing tremendous benefits: we're not spending anything on external consulting now, we're doing it all in-house. That's a tremendous step change compared with a lot of our peers in the market.
EF: COP31 is taking place in Türkiye later this year. Do you expect to see any effects on issuance in the region?
VB: We generally see a 20% uplift in terms of sustainable finance issuances, frameworks and strategy development from countries hosting a COP. There are a number of other factors driving sustainable finance in Türkiye: it's a very mature sustainability market, and there's a big story around alignment with the EU, regarding its Corporate Sustainability Reporting Directive rules, and with its Carbon Border Adjustment Mechanism.
Sustainable finance is of a different flavour in Türkiye: there, it is particularly orientated to social considerations, and it has a large agricultural sector as well. Hard-to-abate sectors also play a significant role in its economy. But, generally speaking, COP31 is going to encourage a lot of sustainability-focused investors to take the time to better understand the country's sustainability story.
EF: How is the rest of this year shaping up for you at Emirates NBD? What are your expectations for 2026 and beyond?
VB: I think this is transition finance's time. We have now seen methodologies from second-party opinion providers, and I think we're going to start to see issuers produce transition finance frameworks and some issuance from the region.
I also expect to see more pragmatism around sustainability. To give an example, I was recently at a sustainable aviation conference: we weren't only talking about zero-emissions sustainable aviation fuel, but also about a different blend of jet fuel which reduces emissions by between 10 and 20%. The engineering team hadn't thought about transition finance as an instrument, but it would qualify. Once we start to talk to issuers about these kinds of transition finance opportunities, the market will really start to take off.
Vijay Bains is group chief sustainability officer and group head of ESG for Emirates NBD Group.
For more information, see: www.emiratesnbd.com/en/about-emirates-nbd/sustainability/sustainable-finance