Al Hilal advances to AFC Champions League knockout stage despite 1-1 draw with Al Sadd    Finance minister: All Vision 2030 projects have sustainable funding that won't affect public finances    Crown Prince announces medium-term debt strategy to diversify funding sources "A resilient economy capable of overcoming challenges reflects progress towards achieving Vision 2030 goals"    'No excuses' for Israel to not accept ceasefire deal, EU foreign policy chief says    Alkhorayef highlights role of National Initiative for Global Supply Chains in boosting Saudi economy    Saudi Arabia signs investment deals worth SR35bn with foreign firms to strengthen global supply chains    Saudi Arabia unveils updates on Expo 2030 Riyadh master plan at 175th BIE General Assembly Riyadh Expo Development Company established to oversee strategic planning, operations, and legacy development    Riyadh Season draws 8 million visitors in 6 weeks    Saudi FM attends Quadripartite meeting on Sudan in Italy    Gangsters block aid distribution in south Gaza    Russian deserter reveals war secrets of guarding nuclear base    Georgia's new parliament opens first session amid mass protests and boycott    Best-selling novelist Barbara Taylor Bradford dies    Cristiano Ronaldo's double powers Al Nassr to 3-1 win over Al Gharafa in AFC Champions League    Al Ahli edges Al Ain 2-1, bolsters perfect start in AFC Champions League Elite    Al-Falih: 1,238 foreign investors obtain premium residency in Saudi Arabia    Most decorated Australian Olympian McKeon retires    Adele doesn't know when she'll perform again after tearful Vegas goodbye    'Pregnant' for 15 months: Inside the 'miracle' pregnancy scam    Do cigarettes belong in a museum?    Order vs. Morality: Lessons from New York's 1977 Blackout    India puts blockbuster Pakistani film on hold    The Vikings and the Islamic world    Filipino pilgrim's incredible evolution from an enemy of Islam to its staunch advocate    Exotic Taif Roses Simulation Performed at Taif Rose Festival    Asian shares mixed Tuesday    Weather Forecast for Tuesday    Saudi Tourism Authority Participates in Arabian Travel Market Exhibition in Dubai    Minister of Industry Announces 50 Investment Opportunities Worth over SAR 96 Billion in Machinery, Equipment Sector    HRH Crown Prince Offers Condolences to Crown Prince of Kuwait on Death of Sheikh Fawaz Salman Abdullah Al-Ali Al-Malek Al-Sabah    HRH Crown Prince Congratulates Santiago Peña on Winning Presidential Election in Paraguay    SDAIA Launches 1st Phase of 'Elevate Program' to Train 1,000 Women on Data, AI    41 Saudi Citizens and 171 Others from Brotherly and Friendly Countries Arrive in Saudi Arabia from Sudan    Saudi Arabia Hosts 1st Meeting of Arab Authorities Controlling Medicines    General Directorate of Narcotics Control Foils Attempt to Smuggle over 5 Million Amphetamine Pills    NAVI Javelins Crowned as Champions of Women's Counter-Strike: Global Offensive (CS:GO) Competitions    Saudi Karate Team Wins Four Medals in World Youth League Championship    Third Edition of FIFA Forward Program Kicks off in Riyadh    Evacuated from Sudan, 187 Nationals from Several Countries Arrive in Jeddah    SPA Documents Thajjud Prayer at Prophet's Mosque in Madinah    SFDA Recommends to Test Blood Sugar at Home Two or Three Hours after Meals    SFDA Offers Various Recommendations for Safe Food Frying    SFDA Provides Five Tips for Using Home Blood Pressure Monitor    SFDA: Instant Soup Contains Large Amounts of Salt    Mawani: New shipping service to connect Jubail Commercial Port to 11 global ports    Custodian of the Two Holy Mosques Delivers Speech to Pilgrims, Citizens, Residents and Muslims around the World    Sheikh Al-Issa in Arafah's Sermon: Allaah Blessed You by Making It Easy for You to Carry out This Obligation. Thus, Ensure Following the Guidance of Your Prophet    Custodian of the Two Holy Mosques addresses citizens and all Muslims on the occasion of the Holy month of Ramadan    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



UAE guiding principles on sustainable finance credit positive for banks
Published in The Saudi Gazette on 26 - 01 - 2020

The United Arab Emirates (UAE, Aa2 stable) published its first set of guiding principles on sustainable finance during the second edition of the Abu Dhabi Sustainable Finance Forum on Sunday. The guiding principles will contribute to UAE banks' understanding and management of environmental, social and governance (ESG) risks that affect their credit profiles.
Commenting on UAE's bank sector, Moody's Investors Service said last Jan. 23 that environmental and governance risks are the most relevant for UAE banks, while social risks are in line with our assessment for banks globally. Compared with most banking systems, UAE banks have higher exposure and vulnerability to environmental risks because of their indirect exposures to the local climate and to the hydrocarbon sector. The hydrocarbon sector accounted for 26% of the country's nominal GDP and 50% of the government's total revenues as of December 2018, the latest data available.
As a major oil exporter, the UAE's environmental risks are predominantly related to carbon transition, despite sizable supportive financial buffers. The UAE is also one of the world's most arid states, and most of the country's water is produced by desalination plants, which are highly energy intensive. Rapid economic and population growth in recent decades has increased challenges surrounding water sustainability, Moody's said.
.
The three guiding principles are the integration of ESG factors into governance, strategy and risk management, the adoption of a minimum eligibility requirement to help identify sustainable financial products and the promotion of appropriate ESG-related reporting and disclosures. The guiding principles aim to facilitate the UAE's transition to a more sustainable and diversified economy, mitigate the risks of reduced global demand for oil and adapt to the physical risks of climate change.
Although the guiding principles are voluntary, as part of an effort to ensure a gradual and consultative transition, regulatory authorities aim to implement appropriate measures for ESG integration once the principles have been endorsed. Measures may include guidelines and policies to encourage UAE-based financial firms to develop strategies incorporating ESG considerations in their business activities, decision-making, risk frameworks and investment opportunities.
Transmission channels of environmental risks for UAE banks include credit exposure to borrowers with stranded hydrocarbon assets or hurt by growth constraints in the absence of improved water consumption efficiency. Another transmission channel is the gradual incorporation of environmental considerations in the investment decision making of international investors that provide financing to UAE banks, which will put pressure on banks to show strong ESG credentials.
Governance is typically banks' main ESG risk because corporate governance weaknesses can weaken a company's credit quality. In the UAE, as with the rest of the Gulf Cooperation Council (GCC), government and government-related entities (GREs) are often the largest shareholders, depositors and borrowers in banks, which may lead to governance challenges, Moody's further said. Such challenges include sizable related-party lending, with banks extending funding to the government or GREs that are the banks' ultimate shareholders. Nonetheless, the central bank's stricter rules on borrower concentrations following the financial crisis partly mitigate the concentration risk. New regulation caps bank exposure to local governments and to government-related commercial entities, among others, at 100% of total equity each. Lending to the government and the public sector was 26% of the system-wide domestic credit of UAE banks as of November 2019.
In terms of social considerations, the most relevant social risks for UAE and global banks arise from the way they interact with their customers, Moody's further said. For all banks globally, social risks related to data security and customer privacy are high, but these risks are mitigated by sizable technology investments and banks' long track records of handling sensitive client data. Fines and reputational damage because of misconduct is a further social risk to banks globally. Societal trends are also relevant in a number of areas, such as shifting customer preferences towards digital banking services increasing information technology cost, or socially driven policy agendas that may translate into regulation that affects banks' revenue base. Overall, we typically consider that banks have moderate social risks.
UAE banks, particularly the largest ones, have made progress in ESG integration in recent years. In January 2019, 25 UAE public and private-sector entities signed the Abu Dhabi Sustainable Finance Declaration at the inaugural Abu Dhabi Sustainable Finance Forum, and 11 additional entities signed the declaration in January 2020. Signatories include First Abu Dhabi Bank PJSC (FAB, Aa3/Aa3 stable, a31), Abu Dhabi Commercial Bank (A1/A1 stable, baa3) and Abu Dhabi Islamic Bank (A2 stable, ba1).
In addition, Moody's pointed out that FAB raised the first green bond of the GCC region in March 2017, and the bank publishes annual sustainability reports including a corporate ESG report, an Equator Principles report and a green bond report. Emirates NBD PJSC (ENBD, A3/A3 stable, ba1) offers interest rate discounts on auto financing of selected electric and hybrid cars, as part of its "green auto loan" scheme. ENBD also publishes an annual sustainability report.
The published three guiding principles are premised on the United Nations Agenda for Sustainable Development, and result from collaborative efforts among several regulatory authorities in the UAE, including the Ministry of Climate Change and Environment, the central bank, the insurance authority, the securities and commodities authority, as well as the Abu Dhabi Global Market, the Dubai Financial Services Authority, the Dubai Islamic Economy Development Centre, the Abu Dhabi Securities Exchange, the Dubai Financial Market and Nasdaq Dubai. — SG


Clic here to read the story from its source.