Across the globe today, financial institutions are increasingly aware that funding projects now comes with additional responsibilities. There’s an emerging expectation that this investment should help to deliver social and environment benefits as well as a financial return.
As part of the United Nations Environment Programme (UNEP) Finance Initiative meeting that took place in Dubai last year, eight banks from within the UAE came together to sign the ‘Dubai Declaration on Sustainable Finance’. As part of this, they established a new fund that will help to support a range of sustainable projects within the UAE over the next 5-10 years, including large-scale programmes and smaller community initiatives.
This was a really positive step forward for both Dubai and the rest of the UAE. The challenge facing the finance, business and construction communities now, will be to come together and define a way of working that gives all parties the confidence to move forward and start to use this capital to support real-life projects.
Three key areas that financial institutions can focus on to help build further momentum include:
Agree on the key areas of risk they will focus on when it comes to assessing whether to place capital in a project.
Be clear with borrowers on the parameters they will be assessing, including baseline performance, and the requirements they will expect in terms of ESG compliance
Develop a detailed strategy on how to capture data from the projects that they fund, so that the full benefits can be easily and effectively reported.
Project owners looking to borrow capital will also need to become much sharper at identifying potential ESG risks within their schemes, and at articulating how they will go about addressing these risks. This will help to build confidence with banks that they will not be inheriting any future liabilities if they do provide the capital to kick-start a worthy initiative.
Three key areas that borrowers should focus on include:
Carry out due diligence reviews to ensure their project plans comply with the requirements set out by the banks, before they make a formal submission.
Where risks have been identified (major and minor), develop clear improvement strategies that demonstrate how they will look to adhere with a bank’s risk principles.
Develop a plan on how to capture data to demonstrate the positive impact of their activities – this should then be shared with lenders, analysts and other stakeholders.
There has been really good progress made over the last twelve months and the direction of travel is clear. Supporting the Dubai Declaration will help the UAE to transition towards a lower-carbon economy, as outlined within the UAE’s Green Agenda 2015-2030 and Vision 2021.
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