Climate change concerns spur Middle East issuers to move capital into sustainable activities, HSBC says

About 85 per cent of Middle East issuers will reallocate capital noticeably in the next five years, survey shows

HSBC revealed plans to shed 10,000 staff globally earlier this month in a bid to improve profitability. Chris Whiteoak / The National

Middle East debt issuers expect to see a real impact from climate change on business over the next decade and are planning to shift their capital to more sustainable activities, a survey from HSBC shows.

About 86 per cent of regional issuers plan to move capital over the next five years either away from activities challenged by environmental and social issues, or towards activities that promote positive environmental or social outcomes, according to HSBC's 2019 Sustainable Financing and Investing Survey.

"Issuers in the region are well aware of the impacts of climate change," Sabrin Rahman, regional head of sustainability for Middle East, North Africa and Turkey at HSBC, said. "More importantly, the survey shows that issuers and investors are incorporating sustainable-focused targets into their plans, and of particular significance is their enthusiasm for green debt instruments.”

The study comes as protests on climate change sweep across Europe and Asia in a growing movement led by youth calling for action to curb global warming. The HSBC global study of 500 issuers and 500 investors across Europe, Asia, the Middle East and the Americas, shows around 60 per cent of both groups said environmental and social issues are ‘very important’. Of the 500 issuers and 500 investors surveyed globally, the Middle East included 70 issuers and 70 investors, split evenly between Saudi Arabia and the UAE.

The awareness of climate change among Mideast issuers meant that they had a strong interest in environmental, social and governance (ESG)-linked loans, with 94 per cent saying the product sounds either ‘very interesting’ or ‘potentially interesting’.

However, Middle East investors have the highest perception of obstacles to ESG investments, standing at 77 per cent regionally versus 61 per cent globally.

These hurdles include lack of ESG data comparability between issuers, a shortage of expertise or qualified staff, or a lack of demand from clients.

Middle Eastern investors are also particularly positive about green bonds, the report said.  Almost half of investors in the region report that they will start significant buying of these instruments in the next two years, while a further 19 per cent will increase their investments.

Uniquely to the Middle East, not a single issuer thinks they will be safe from the effects of climate change for the next 30 years, the survey showed.

"Climate change is recognised as a reality that already impacts business, or will soon. Despite — or perhaps because of — the heavy reliance of the Middle East on oil and gas, this region is the strongest for recognising this," the report said.