How Masdar gain from its push for transparency

It is also making the most of ESG objectives and setting higher standards

Masdar City and the Mohamed Bin Rashid Innovation Fund have announced a strategic partnership to cultivate entrepreneurship and economic development in the UAE and internationally. Photo: HK Strategies

In a world that seeks solutions for a sustainable future, the market for green investments is already huge and it is growing exponentially. Major financial institutions across the globe are looking for opportunities to use capital against investments that meet sustainable and/or environmental, social, and governance (ESG) objectives. According to Bloomberg, assets with high-performing ESG metrics could hit a staggering $53 trillion by 2025, which is more than a third of total assets under management.

This is, of course, good news for Masdar, where sustainability very much informs our approach to finance – whatever capital we raise is deployed for a sustainable purpose. We have long been pioneers in sustainable financing: in 2018 we launched the region’s first green revolving credit facility (RCF), and last year we established the Masdar Green REIT, the UAE’s first real estate investment trust focused on investments in sustainable real estate assets.

Both of these initiatives have been very well received in the market, I am proud to say, with the recent renewal of the green RCF attracting exceptional appetite among local, regional and international financial institutions. This has enabled us to renew on very favourable terms. The Masdar Green REIT has received a similarly positive response when securing its first debt financing facility.

As one of the first companies in the region to recognise the importance of reporting on sustainability issues – we produced our first annual sustainability report in 2012 – the key to our success is our transparency.

We can also demonstrate solid business fundamentals, with lenders recognising not only our financial strength and track record, but also our emphasis on sustainable development, investment and the quality of our brand, which allows us to look at even more innovative ways to structure financial solutions.

Organisations that cannot deliver similar levels of transparency are likely to miss out on the appetite for ESG investment. A report from EY titled How to realise the full potential of ESG-plus shows an urgent need for ESG reporting and disclosure to mature to the same level as financial disclosure. This is all the more important as investors seek to improve their understanding of how a company’s ESG strategies affect both performance and society (that is, the internal and external impact), and create value.

This strong connection between ESG and financials will enable companies to better demonstrate the economics of different ESG strategies and targets. Not just that, it will ensure that the true costs and opportunities of business are properly measured. Importantly, better ESG disclosures will help all stakeholders understand more about how a company performs, makes decisions and creates value. And it will also significantly reduce the risk of greenwashing, which is the process of presenting false information thus creating an impression about a company's products, making them seem more environmentally friendly than they really are.

This is why we are embracing transparency and going beyond our annual sustainability report, which has already set the standard for the region. We are also sharing the outcome of our inaugural credit ratings exercise, which was conducted by Moody’s Investor Services and Fitch Ratings during 2021, to help the investment community better understand Masdar and our credit risk. Both agencies issued Masdar with ratings that place the company in the investment grade space, which certainly does help us.

We are also developing our sustainable finance framework for all to see. In recognition of the importance of impact reporting for improved transparency and standards, we are sharing how capital is used, what it is used for, and the real-world outcomes derived from that capital investment, in terms of advancing the global sustainability agenda.

Going forward I believe it is essential that more companies continue to follow Masdar’s lead in this space. As the most recent report from the Intergovernmental Panel on Climate Change makes clear, while we are seeing record interest in sustainable investment, financial flows are still falling below the levels needed to limit global warming to below 2°C.

In the field of ESG, where there are now so many opportunities to shape and improve the world, Masdar is both a pioneer and a role model. And in that, we have a responsibility to try to always improve our ESG standards and levels of transparency, wherever we work in the world. The opportunities that stem from doing so are immense. I look forward to more innovation in how we approach financing and how we tell our own story in the years to come.

Niall Hannigan is the chief financial officer of Masdar, Abu Dhabi Future Energy Company

Published: May 05, 2022, 9:00 AM