ISLAMIC GREEN ENERGY

Dubai 2018 | GREEN ECONOMY | FOCUS: GREEN FINANCING

With its dedication to environmental sustainability and burgeoning financial center, Dubai is poised to emerge as a center for green bonds and sukuks.

MALAYSIA with its reputation as a pioneer in Islamic finance and socially responsible investments, currently leads the Islamic world in developing sharia-compliant green bonds. It issued the world's first green sukuk for USD1 billion, and the UAE, amongst other GCC countries looking to diversify investments, is keen to follow suit. Indeed, the UAE is one of the most active emerging markets in the area of green bonds and is among the top Islamic finance markets, making green sukuks a natural fit for the Gulf country.

Though green bonds only account for 1% of worldwide bond issuances, there has been a boom in green funding in recent years, reaching USD200 billion in outstanding green bonds in 2017. In fact, the World Bank asserts that green sukuk is a leap in bridging conventional and Islamic finance, in addition to supporting green energy projects.

The National Bank of Abu Dhabi (NBAD) was the first bank in the GCC to issue a green bond, in 2017, and one of the projects funded by investors will be the Etihad Rail network, passing through Dubai and four other GCC states. NBAD is committed to sustainable business and is an original signatory of the Dubai Declaration, a commitment in conjunction with the UAE Ministry of Climate Change and Environment to enable a green economy. To this aim, NBAD's green bond issuance was 72% larger than the average corporate or government green bonds issued in 2016.

Additionally, NBAD's example provides a blueprint for green bonds and sukuks in the region that Dubai may be interested in utilizing. In March 2017, Ernest & Young noted the potential of green bonds for financing green funds, such as the Dubai Green Fund. The Dubai Green Fund is part of Dubai's Clean Energy Strategy 2050, which aims for the Emirate to have one of the lowest carbon footprints by the mid-point of the century. Also in March 2017, the Dubai Supreme Council of Energy approved a funds roadmap to allocate the AED100 billion (USD27.2 billion) to both current and future short- and long-term green projects.

Boasting an approved roadmap for the environmentally conscious fund and a flourishing population demanding more energy and energy efficiency, the market for green bonds and sukuks in Dubai and the broader MENA region is expected to take off. The UAE's Power Plan 2050 aims to cut CO2 emissions by 70% and increase green energy use by 50%. The ambitious plans of the UAE to reduce its carbon footprint and become a hub for clean energy will make green financing, especially green sukuks, especially appealing.
With regard to regulation, the Clean Energy Business Council (MENA), Climate Bonds initiative, and the Gulf Bond and Sukuk Association established the Green Sukuk and Working Party to develop sharia-compliant, environmentally friendly solutions for investment. Eligible assets can include solar, wind, and waste-to-energy plants as well as low-carbon building and transport projects, none of which are in short supply in the MENA region. Improved regulatory frameworks will be critical, and as of now, there are no verification or certification processes for green bonds and sukuks.

As a leading regional financial power, Dubai is ideally equipped to become a hub for environment-focused bonds and sukuks. In 2017, Emirates National Bank Dubai (NBD), a leading bank in the UAE, was awarded the title as the Most Innovative Financial Services of the Year at the BAI Global Innovation Awards. And Dubai's Vision 2021 works to maintain the Emirate's role as a leader across the full spectrum of the Islamic economy, thus making moves to offer green sukuk investment opportunities should be an integral part of Dubai's green energy sector.