Bank financing falls short of UAE’s green economy ambitions

'Conventional banks do not see the return on investment from green initiatives, but that is short-term thinking.'

A solar installation on the roof of the Al Fahidi Souk in Dubai. Silvia Razgova / The National

Private-sector environmental initiatives are being hampered by banks’ reluctance to finance clean-energy enterprises.

Indeed, economic development is taking its toll on the environment even though the UAE has made progress in reducing its carbon footprint. The country has lowered its annual per capita emission of greenhouse gases to 18.8 tonnes last year from 40 tonnes in 2006, according to the Ministry of Environment.

“Although there are some banks that have a green remit, most are failing in their environmental concerns,” said Aisha Al Abdooli, assistant undersecretary of the Green Development Department at the Ministry of Environment and Water.

She was speaking in Dubai last week at the national round table on financing and investing in green economy projects.

“It is not a secret that conventional banks do not see the return on investment from green initiatives, but that is short-term thinking,” said Ms Al Abdooli.

“The government has committed to making the country environmentally sustainable. The investment is already being made, we need the private sector to join in.”

Sabrin Rahman, a senior manager in HSBC’s Middle East corporate sustainability team, said the bank recognised the importance of supporting environmentally-friendly businesses.

“Renewable energy is a big focus, but so is energy efficiency, low carbon transport, and waste and water management,” he said.

Last year, HSBC helped to finance wind-energy projects, energy-efficient social housing, water projects, biodiversity schemes and public transport systems, said Mr Sabrin.

Islamic finance is a natural fit for environmental initiatives, given its basic tenets of partnerships and benefiting society with a longer investment time frame than conventional banking, according to experts at the round table.

“There is a huge opportunity in the range of $15m to $50m sukuk,” said Martin Haupts, managing director of Phanes group, a solar energy developer and asset manager.

“The green initiatives offer long-term stable revenues over 15 to 20 years. Islamic finance with securitisation is a great option where conventional financing is not ready for the risk.”

Conventional banking is not a natural fit for new technologies and early adoption needs because of its short-term investment time frame.

The United Nations Environment Programme is, however, encouraging the banking sector to take a leading role in the development of environmentally-minded businesses.

“The UAE’s banking system needs to get out of the back seat and into the driving seat,” said Iyad Abumoghli, the programme’s director and regional representative for West Asia.

“Generally there is no buy-in from the banks or their customers, and it is incredibly short-sighted. The UAE is the only country in the Middle East with a strategic plan for a green economy that encompasses food, transport, energy and buildings. The banks are missing a massive opportunity.”

However, the National Bank of Abu Dhabi (NBAD) has been working with global consultancy PwC and the University of Cambridge regarding the role that the lender can play in the clean-energy sector.

That is according to Nathan Weatherstone, head of project finance advisory at NBAD.

“This is the beginning of our approach to making a real contribution to an energy mix that’s more diverse and more sustainable,” he said.

The Al Qusais landfill gas project has converted the 29-year-old waste facility into a fully functional energy production plant.

The project is an initiative of Dubai Municipality’s waste management department and project developer Green Energy Solutions & Sustainability.

It produces a megawatt of electricity that is used for the landfill’s energy needs.

However, the project’s financiers have been unable to recoup the Dh40 million invested.

“We are making electricity from waste, pure and simple,” said Anita Nouri, business development director at Green Energy Solutions.

“We produce a megawatt but burn enough gas at the landfill to produce 12 MW. But that would take more investment, and as we haven’t had any returns in the three years we have been running this, it’s a big ask. I believe in what we are doing and can see it working on a far bigger scale. But as for making a business out of it, that needs government support or it has no way of making profits.”

Follow The National's Business section on Twitter