Fitch Rating: COP28 increases the momentum of green financing Al Khaleej newspaper

Fitch Ratings Agency confirmed that the COP28 conference would increase awareness of sustainability issues in the region, and would contribute to directing investment and financing requirements to be “more environmentally friendly.”

Bashar Al-Natour, Executive Director and Global Head of Islamic Finance at Fitch Ratings Agency, said that the COP28 conference will likely contribute to increasing sustainable sukuk issuances in the coming period.

He said: “Since 51% of sustainable issuances in the Gulf are in the form of sukuk, there is no doubt that they will benefit from the state of awareness that COP28 contributes to shaping.”

Speaking to the Emirates News Agency, WAM, Al-Natour stated that the volume of ESG (environmental, social and governance) instruments outstanding in the Emirates amounted to $6.4 billion at the end of the third quarter of 2023, an increase of 41 percent compared to $4.5 billion at the end of the previous quarter.

He pointed out that the “ESG” sukuks existing in the UAE constitute more than 19% of the total of this type of sukuk globally, and more than 30% of the “ESG” sukuks classified by Fitch.

He added: “The UAE topped the world’s issuers of sustainable sukuks during the third quarter of 2023. The value of ESG sukuk issuances during this quarter amounted to $1.8 billion, or about 80% of the total of this type of issuances globally, which amounted to $2.3 billion. There is an acceleration of government initiatives and policies related to sustainability in the region and in the UAE in particular during the current year, and some initiatives have a direct impact and some are long-term.”

He pointed out that Islamic banking in general in the Emirates will benefit from “COP28”, and Islamic finance represents 29% of the total financing of the banking sector at the end of 2022, and Emirati institutions are exporters, investors and main payers of sukuk issuances. All sustainable issuances evaluated by Fitch in the UAE are “investment category”, distributed by 35% from financial institutions, 25% from infrastructure companies and projects, and 38% from other companies and sectors.

He said: “Until now, there are no government sukuk issuances in this context, and then when the government enters the field of sustainable issuances in the Emirates, there will be a major qualitative shift during the next stage. Financing sustainable projects from the government is not necessarily through the issuance of sukuks or bonds, and it can be self-financing, but in light of the UAE’s tendency to diversify funding sources, we may see in the future a sustainable issuance from a direct government entity.”

Al-Natour confirmed that green issues globally constitute about 45% of the total ESG issues during the third quarter of 2023.

He explained that green sukuks are one of the branches of environmental, social and corporate governance issuances, or ESG issuances, which contain green issuances, blue issuances, social issuances, or sustainable issuances. Pointing out that the classification of sukuks is linked to the desired impact of the project. If you are financing a project that has environmental objectives or contributes to reducing emissions in a specific field, then the sukuks are green, and if the project objectives are related to water health, then the issues associated with it are called blue. If you are financing a project that has objectives Certain social issues are called social issuances, such as the sukuk issued by the Islamic Development Bank during the “Corona” phase to support the social situation affected by the pandemic at that time, for example.

He pointed out that the existing global ESG instruments expanded by 66% on an annual basis to reach $33.3 billion at the end of the third quarter of this year, 67.2% of which was in hard currency, the largest portion of which was in US dollars. Pointing out that one of the driving factors for issuing these sukuks in hard currency is attracting foreign investors who are sensitive to sustainability issues. Despite the significant growth in trends and investors interested in sustainability or sensitive to issues of sustainability, governance, and social issues in the region, it cannot be described as a broad segment yet.

Regarding building sustainable issuances in the form of sukuks in the major Islamic finance countries in the world, Al-Natour stated that sukuks in these countries constitute about 30% compared to 70% for bonds, but if we look at the sustainable issuances in the Gulf countries, for example, 51% of them are sukuks. Compared to 49% for bonds, therefore, sustainable or green issues in sukuks are higher than their percentage in bonds.

He pointed out that of the total sukuks evaluated by Fitch, about 13% of them are of a sustainable nature, noting that the agency evaluates more than 80% of global ESG issuances in hard currency.

He stressed that some countries, such as the UAE, attach great importance to sustainability and are able to push in this direction, while some other countries, such as African countries, may be willing to advance sustainable projects, but their financial capabilities necessitate some other priorities.

Al-Natour pointed to two challenges: the first lies in the legislative frameworks that clarify and define the nature of the issues and their frameworks, and the second is the presence of projects with a certain momentum that serve this goal, especially from the private sector not linked to the government, as well as the challenges that concern certain countries that do not make sustainability a priority due to the presence of more urgent needs. for her.

ESG (environmental, social and governance) sukuks constitute 4.1% of global sukuks due until the end of the third quarter of 2023, while Fitch expects them to exceed 7.5% by 2028 against the backdrop of government sustainability initiatives and the issuers’ goal of diversifying funding sources and meeting… Environmental, social and governance requirements and standards.

It issued “ESG” sukuks worth $2.3 billion (4.3% of the total sukuk) in the core markets of the Gulf Cooperation Council countries, Malaysia and Turkey, a decrease of 36% on a quarterly basis, and this is in line with the slowdown in the sukuk and bonds market in the third quarter of 2023 due to the summer period. Which is calm on this level.

(loan)