How ADGM is developing a sustainable finance industry in the UAE

Over the years, Abu Dhabi Global Market (ADGM), which marked its seventh anniversary this month, has been implementing several sustainable finance initiatives to preserve the UAE’s economy and environment for future generations.

Sustainable finance refers to the process of taking environmental, social and governance (ESG) considerations into account when making investment decisions in the financial sector.

Mercedes Vela Monserrate, head of sustainable finance at ADGM, noted that the international financial centre aims to develop a vibrant sustainable finance hub that supports capital formation as well as the creation and issuance of products to achieve positive economic, social and environmental objectives.

“We are closely aligned to UAE initiatives, supporting Abu Dhabi, the UAE and global stakeholders in achieving Sustainable Development Goals and climate change objectives of the Paris Agreement.  With an internationally recognised regulatory regime, direct application of common law and proximity to some of the world’s largest sovereign wealth funds, institutional investors and private wealth, ADGM is ideally placed to develop a sustainable finance ecosystem catering to the needs of local and international investors.”

Monserrate noted that in alignment with national and international initiatives, ADGM has placed environmental and social objectives at the forefront of its own strategy.

Since 2019, initiatives like Sustainable Finance Agenda, Sustainable Finance Working Group and Abu Dhabi Sustainable Finance Declaration were launched to develop a booming sustainable finance hub.

“The Abu Dhabi Declaration calls for collaboration and collective action to create a thriving sustainable finance industry not only in the UAE, but across the wider region. In line with this agenda, ADGM continues to incorporate sustainability principles into its regulatory framework, to be the first international financial centre in the region that builds an ESG framework.”

Monserrate said ADGM’s efforts have resulted in concerted collaboration by both the public and private stakeholders of the UAE to channel attention, resources and conversation on sustainable financing.

“To further our commitment in sustainable finance, ADGM will launch several new initiatives.”

In the past, ADGM published the UAE’s first set of Guiding Principles on Sustainable Finance, launched the Abu Dhabi Sustainable Finance Forum, the first social bond project and the UAE’s first sustainable Real Estate Investment Trust, adopted a series of internal sustainable principles to enhance ADGM’s existing ESG practices, rolled out the Gender Equality Initiative and the Sustainable Finance Platform for investors and stakeholders to have real-time access to essential sustainable finance data specific to the UAE and wider regional, reflecting international standards and featuring customisable indicators.

Monserrate noted that ADGM is working with its peer regulatory authorities in the UAE to develop a taxonomy for sustainable projects.

“To increase the adoption and growth of sustainable finance, ADGM is enhancing its regulatory framework to include clear ESG and sustainable finance requirements in its regulatory framework.

ADGM’s recent focus on developing standards for green-labelled financial products and services, aims to help investors identify investments with a sustainability objective and ensure that financial institutions incorporate climate change risk into their risk management.”

First 'carbon neutral' financial centre

ADGM is the first ‘carbon neutral’ international financial centre in the world. It is also partnering with AirCarbon Exchange to create the world’s first fully-regulated carbon trading exchange and clearing house.

“While voluntary carbon markets are only one component of the global climate finance structure, they have demonstrated considerable growth in the last few years, having surged from $146 million just four years ago to more than $1 billion this year. In this context, the creation of a regional voluntary carbon market in combination with the necessary regulatory framework would present yet another opportunity for the UAE financial sector.”

To support the sustainability initiatives and innovations, ING is one of the banks that ADGM collaborates with on three areas of Sustainable Finance, namely regulation, collaboration, and capacity building.

“At ING, sustainability is at the heart of what we do. We monitor and manage the climate impact of our operations and are sourcing 100 per cent renewable electricity for the buildings we have management control over. We integrate sustainability in our procurement processes and have been compensating for our remaining carbon emissions since 2007,” said Sebastian Frederiks, head of wholesale banking Middle East, ING Bank.

“The biggest impact we can make is with our financing. We have committed to steer our loan book towards meeting the Paris Agreement’s 1.5-degree climate goal, or net zero by 2050. We call our strategy to get there the Terra approach. It focuses on the nine sectors in our loan book with the highest emissions: oil and gas, renewables and conventional power, automotive, shipping, aviation, steel, cement, residential mortgages and commercial real estate.”

Frederiks underlined that following the decision to host the UN Climate Change Conference COP 28 in the UAE, there has been a “further acceleration” in client requests for support within the domain of ESG.

ING has been supporting ADGM and the UAE in achieving its sustainability and climate goals.

“In January 2019, ING was one of the 25 inaugural signatories to the Abu Dhabi Sustainable Finance Declaration. Since then, ING and ADGM continue to work very closely together on sustainable finance topics. ING can play a role by financing change, share our knowledge, and offer our innovative solutions. All of which we actively deploy for our UAE banking clients. For instance, we organise ESG awareness sessions for Boards of Directors, we share best practices in risk and due diligence, we support sustainability-linked lending facilities, and we utilise our deep ESG investor distribution network for green bonds.”