The United Arab Emirates are ahead of scheduled targets set by the 2050 Energy Strategy, launched in 2017 after the Paris climate agreement in 2015, which the UAE was among the first to ratify. The renewable energy target of 7% by 2020 has already been reached and in two years the country will be at 8%. The next steps include 25% for 2030 and 44% for 2050, with Dubai setting the highest target at 75% as well as 40% more energy efficiency and a 70% reduction in CO2 emissions. Solar technologies, in particular photovoltaic and solar concentration systems, but also energy efficiency, storage systems and the smart grid will bring the federation of seven sheiks to the forefront on the road to sustainability and economic diversification in a country that has an economy mainly based on fossil fuels.
In an era that is moving towards low-carbon and falling oil prices, the United Arab Emirates have been studying alternative ways for financial and environmental sustainability for several years now. It is no coincidence that after Rio2012 Sheikh Mohammed Bin Rashid Al Maktoum, vice president and prime minister of the United Arab Emirates and Emir of Dubai, in collaboration with the United Nations Development Program, founded the World Green Economy Organization (WGEO). The WGEO is the first international organization that aims to spread the green economy in a sustainable development context by promoting the meeting between financing, technology and business.
The government continues to push sustainability high up on the agenda. But the energy transition needs to be financed. On the occasion of the Abu Dhabi Sustainability Week, this year held from 12 to 19 January, Abu Dhabi Global Markets signed a declaration with 25 signatories, including banks and institutions specializing in sustainable investments. Furthermore, the Emirates are becoming a large market for green bonds – green bonds that raise resources to invest exclusively in sustainable projects – also thanks to incentives for green investments. In 2016, the Dubai Electricity and Water Authority created the 100 billion dirhams (just under 24 billion euros) Dubai Green Fund to finance environmental projects at favorable interest rates. In March 2017, First Abu Dhabi Bank issued a five-year green bond of $587 million – the first in the region – and allocated $10 billion to finance green businesses over the course of ten years. Abu Dhabi-based clean energy company Masdar signed the Middle East’s first green revolving credit facility in October with First Abu Dhabi Bank, Société Générale Corporate & Investment Banking, Japanese multinational banking, Sumitomo Mitsui Banking Corporation, and UniCredit.
Globally, the green bond market is also growing. According to the Climate Bonds Initiative (CBI), the reference organization for the sector, it was worth $167.3 billion in 2018, up from $162 billion in 2017. The United States (20%), China (18%) and France (8%) are currently worth nearly 50 percent of the market, which CBI estimates will rise to $250 billion in 2019.
According to the first Green Bond Report of First Abu Dhabi Bank (FAB) published in June 2018, the UAE was among the ten new players entering the green bond market in 2017, along with Argentina, Chile, Fiji, Lithuania, Malaysia, Nigeria, Singapore, Slovenia and Switzerland. The potential is great. For example, ING, one of the signatories of the Abu Dhabi Global Markets Declaration, intends to double its global portfolio of sustainable assets in 2022. Sustainable financing currently represents around 15% of the current portfolio of the bank, which plans to increase in significantly its investments in the renewable energy sector.
Another financial institution very active in the area of green finance is Société Générale, which is working on numerous financing agreements for renewable energy.
The United Arab Emirates is therefore at the forefront of green finance and is proceeding quickly with the transition to renewable energy. The potential at stake is very high, as can be seen from the significant increase in operations in this sector in recent years and from the forecasts of continuous growth also in the years to come, with the involvement of the main groups in the sector and the most important local and international credit institutions.