More green finance raised in Mena in first half than in whole of last year

Green and sustainability-linked funding in the region reached $6.4bn in the first six months of this year, 38% higher than last year, according to a Bloomberg study

Red Sea Development Company’s $3.8bn loan accounted for most of the Mena region's green financing issuance in the first half of 2021. Courtesy: The Red Sea Development Company

Green financing linked to sustainability projects in the Middle East and North Africa region reached $6.4 billion in the first half of 2021, topping the amount raised through the whole of last year, according to a new study.

The volume of green funding in the first six months of this year is 38 per cent higher than the $4.7bn raised throughout 2020, according to Bloomberg’s H1 2021 Capital Markets League Table.

The Red Sea Development Company’s 14.12bn Saudi riyals ($3.8bn) in funding through the first locally-denominated green financing credit facility accounted for more than 59 per cent of the region's first-half total.

Financial institutions in the region are also looking to raise funds through green instruments, with First Abu Dhabi Bank, the largest lender in the UAE, taking the lead through its green bonds, issued both in Swiss francs and Chinese yuan. Issuers in the region have mostly used green debt for project finance, property development or general corporate purposes, according to Bloomberg.

A number of international banks operating in the region also participated in green and sustainability-linked financing deals in the first half of 2021, with Credit Suisse taking the top slot for its role as manager in FAB’s Swiss franc green bond issuance. HSBC, which participated in FAB’s Chinese yuan green bond deal and the green facility raised by Red Sea Development in Saudi Arabia, took the second spot.

"As the global ESG [environment social and governance] market may represent a third of global AUMs [assets under management] by 2025, ESG debt issuance has surpassed $3 trillion with record speed in May 2021 prompted by the pandemic, race to net-zero emissions, global green fiscal stimulus plans and record low interest rates,” said Adeline Diab, Bloomberg’s head of ESG and Thematic Investing for Emea and Apac regions.

“As the ESG green, social and sustainability debt exponential growth is set to accelerate, the Mena region opportunity is emerging; while it currently only represents 1.3 per cent of this year's global issuance, the market has surpassed last year's sales … in just six months."

Green financing involves structured financial instruments that are created specifically to fund environment, ecology or sustainability-related projects. It includes an array of loans and bonds to encourage the development of projects in sectors such as renewable energy, energy efficiency, pollution prevention, biodiversity conservation and circular economy initiatives. Globally, the green bond market is estimated to reach $2.36tn by 2023, according to the World Economic Forum.

It is increasingly becoming popular in the Mena region, especially in the six-member economic bloc of the GCC, where several ecologically focused and renewable energy projects are being developed.

A number of Mena banks, including Abu Dhabi Commercial Bank, Emirates NBD and Mashreq Bank, have also participated in US dollar or euro-denominated international loans that ranged in value between $300 million and $900m taken out by Turkish banks ING Bank, Yapi ve Kredi Bankasi, Turkiye Vakiflar Bankasi and Akbank over the past two months.

Globally, the volume of green and sustainability-linked debt issuance stood at approximately $541bn in the first six months of 2021, 12 per cent above the total for the whole of 2020 ($482bn). Financial institutions and governments jointly comprise 50 per cent of market share.

More than $3tn in fiscal stimulus globally will be dedicated to financing a green recovery, while ESG assets may top $53tn by 2025, representing more than a third of projected total assets under management, according to Bloomberg Intelligence’s Global ESG 2021 Outlook.

“2021 is poised to be a pivotal year for ESG in reframing markets globally,” Bloomberg said.