With finance increasingly recognised as central to the energy transition – and private finance more than ever – embedding a clear and dependable sustainable finance strategy is also now key for regulators, as well as producers and consumers.
The UAE Sustainable Finance Framework 2021-2030 is just such a document and takes a comprehensive approach to the issue, based on experiences in Europe, Asia-Pacific and the wider Gulf Cooperation Council (GCC) region. [1]
The UAE’s Sustainable Finance Working Group (SFWG), which brings together ministries, financial regulators and exchanges, also launched its Principles for the Effective Management of Climate-related Financial Risks in November 2023. [2]
At the same time, individual emirates have also produced green finance strategies, such as the Sharjah Sustainable Financing Framework, published in February 2023. [3] Particular institutions have also published schemes, such as the Dubai International Financial Centre (DIFC) Sustainable Finance Framework. [4]
The issue is, however, a constantly evolving one, with the super-sized requirements of financing the battle against climate change requiring a great deal of adaptability and flexibility in strategy.
At the same time, however, investors require regulatory – and pricing – certainty over the long term, particularly when considering new and emerging technologies. The inherent variability of some renewables, combined with ever-changings costs as technology advances, also create risks for typically high front-end investments.
There are also new challenges when it comes to financing AI in the energy transition. Currently, the energy sector has only taken around 5% of the $250 billion invested in AI by private finance, worldwide. [5] This is likely to surge, however as applications multiply, also boosting the need for investment in the AI infrastructure, such as data centres.
The development of AI also raises its own regulatory issues, too, with steps such as the UAE Data Law and AI Ethics Policy [6] aiming to ensure responsible AI use and data security – both of which are also vital in providing security for investors.
In the frame
The history of sustainable finance plans in the UAE goes back to 2016 and the State of Green Finance report.
This was published in response to a growing awareness of the need to find ways of managing and mitigating current and future risks connected to environmental, social and climate-based concerns.
Following 2016, key financial regulatory institutions such as the Central Bank of the UAE (CBUAE), the then-Insurance Authority (IA – since merged with the CBUAE), the Securities and Commodities Authority (SCA) and the Dubai Financial Services Authority (DFSA) worked along with the Ministry of Climate Change and the Environment (MoCCE) to produce a broad range of more detailed strategies.
These included declarations on sustainable finance by the Abu Dhabi Global Market (ADGM), which also established a working group on the issue, as did Dubai, where the Dubai Financial Market (DFM) also published an environmental, social and governance (ESG) reporting guide. Further developments included the establishment of a Task Force on Climate related Financial Disclosures (TCFD) with the participation of First Abu Dhabi Bank and Standard Chartered Bank. [7]
With a considerable body of expertise now available to draw on, the UAE Sustainable Finance Framework then came into being.
This is based on three objectives, or pillars: to mainstream sustainability in financial decision-making and risk management; to enhance supply and demand for sustainable finance products and green investment projects; and to strengthen the enabling environment that promotes sustainable finance practices via collaboration between financial and real sector stakeholders. [8]
An international benchmarking exercise was also undertaken, drawing from the experience of similar regulation efforts in the UK, France, the European Union, a range of Asia Pacific countries and other GCC member states.
Sustainable finance definitions and taxonomies from these different sources were also examined, while a range of international bodies, such as the Coalition of Finance Ministers for Climate Action and the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), were also brought into the process.
The resultant strategy is very much oriented towards private sector finance mobilisation, for, as the then-MoCCE minister, Dr Abdullah bin Mohammed Belhaif al-Nuami, wrote in the strategy’s introduction, “The scale of investment required… is well beyond the capacity of the public sector alone”. [9]
Indeed, the International Monetary Fund (IMF)’s October 2023 report, “Financial and climate policies for a high interest rate era”, suggests that global climate investment needs will need to be around $5 trillion per year by 2030 if net zero is to be achieved by 2050.
