The GCC has a part to play in the transition to a more sustainable world
By Robert Spruijt, Head Sustainable Finance EMEA, ING
All eyes were on Glasgow last month for the long-awaited global climate meeting, COP26. For the GCC the global energy transition agenda will be pivotal for the future direction of the region, with clear challenges, but it will also create opportunities.
During COP26, some important announcements have been made. However, it is what happens post-conference that matters. The world is still waiting to see whether the commitments made at COP26 will be enough. A clear takeaway following this year’s meeting is that more action is required to bridge the gap between what is being achieved and delivered now, and what needs to be delivered to achieve a net-zero world by 2050.
ING’s CEO Steven van Rijswijk referred to COP26 as a ‘moment of truth’ as world leaders made serious commitments to align their countries’ emissions reduction strategies with what’s needed to meet global climate goals. However, what happens next is key.
We know that it’s not only up to governments since it is the private and public sector who have to realize the transition together. Banks also have to play an important role, through financing the energy transition as well as working with and guiding clients to more sustainable business models. That is why we participate in this conversation as well.
Financing is playing an important enabling role in this transition journey. We believe sustainable business is better business and we translate this in an active engagement process on sustainability with our clients across the globe. Next to providing various sustainability-linked, green social financing solutions, this contains transition advisory, and services to actively support our clients’ transition to new sustainable business models that will ensure their success in the future. As a financial institution, we can play a role by financing change, sharing knowledge, and using our influence.
One of the financial products that can have a significant impact on the transition of companies is the sustainability linked loan. In 2017, ING has structured the first syndicated sustainability-linked loan in the market (for Philips). This market has grown very rapidly ever since, with a volume over USD 200 billion in the first half of 2021 alone. In such sustainability-linked structures, the interest rates are linked to a client’s sustainability performance and thereby creating incentives for clients to transition towards a more sustainable business model. In the Middle East we have already successfully supported several top-tier clients to transition into a more sustainable business through green bonds, green private placements, sustainability-linked loans and sustainable finance advisories.
We are also very committed to provide sustainable solutions to our clients in the Middle East, which is underpinned by the fact that in January 2019 we joined 24 public and private sector entities in signing the Abu Dhabi Sustainable Finance Declaration at the inaugural Abu Dhabi Sustainable Finance Forum. The declaration is a united front to foster positive economic, social, and environmental impacts and advocate sustainable finance and investments for the long term wellbeing and growth of the country’s economy.
To achieve real tangible improvements, next to this important regional initiative, a global collaborative effort is essential. This would translate in common goals, coherent regulation, clear action plans and mobilizing capital as an enabler to move towards this common direction.
As pioneers of sustainable finance, we want to address the importance to maintain the integrity and credibility of the market at the appropriate levels, as we believe in its material impact in achieving net-zero. The sustainable finance community all around the world, including lenders, borrowers, and investors, needs to maintain the quality of these instruments, since a deterioration thereof would reduce the sustainable impact of such financing and as a result slow down the pace of the transition.
The credibility of the market by nature also relies on the commitment of corporates to achieve their sustainability goals and their ambition to contribute to a net-zero future. We engage with our clients to translate the sector specific transition requirements into company specific sustainability targets.
When setting such targets, it is important that the most material sustainability issues of the company are being addressed. Targets must also be ambitious, industry-wide and verified by a reputable, independent party, of which there are now many in this sector, to ensure that the targets correspond with transition roadmap of the company. This is a complex, but essential process. It is where engagement between clients and lenders matters.
Taking an inclusive approach that supports companies along the way is vital and it is positive to see initiatives across different sectors that demonstrate this. The Abu Dhabi Sustainable Finance Declaration is just one of many examples that are springing around the region, and there will be no doubt that more will follow.
Looking beyond COP26 as we put commitments into action, we all hope that the COP26 goal of “collaboration” does not fade away in the months that follow. We all have a role to play – it’s a big responsibility, but a critical one.