Why green bonds are an effective weapon in the fight against climate change

One of the most important things to remember about climate change is that it is not only a scientific challenge, it’s also an economic one. And if we are all serious about achieving the recommendations set by the Paris Agreement, we will need an immense economic transition that includes significant investment in infrastructure and innovative technology.

Across the priority sectors of the global economy, capital needs to be mobilised to ensure this transition is successful and equitable – and this is especially true across systems that account for global emissions such as power, industry, mobility, buildings, agriculture, forestry and waste. These sectors will all need substantial transformation to achieve net-zero emissions.

According to a new report from McKinsey: the net-zero transition will cost $275tn globally by 2050, as low-emission activities are ramped up and high-emission activities decrease. While the scale of the investment needed is widely known, what is less well known is just how this investment is going to happen.

This is where sustainable financing comes into play. Sustainable finance is defined as investment decisions that take into account the environmental, social and governance (ESG) factors of an economic activity or project.

This year alone, First Abu Dhabi Bank (FAB) has facilitated over $4bn in investments that are tailored towards bringing about a better tomorrow. We also have a target of $75bn by 2030.

One major tool that FAB deploys is green bonds, which work like regular bonds with one key difference: the money raised from investors is used exclusively to finance projects that have a positive environmental impact. We were the first bank in the GCC to issue a green bond back in 2017 and have become leaders in this area ever since.

The provision of green bonds and green private placements products are a vital aspect of our sustainability strategy and the projects we are actively involved in.

Read: Achieving net zero will require the full might of the banking sector

We have been making significant progress in our green bonds issuance. This year, for example, we executed around half of our bond issuance in a green format ($1.5bn), including three public benchmark transactions: EUR500m five-year, the first-ever green issuance in euros from MENA region; CHF 200m four-year, where FAB remains the only issuer from MENA with green CHF outstanding, and $700m five-year, the largest-ever green issuance from a MENA bank.

Despite challenging market conditions this year, FAB was able to attract high quality investors, including large central banks and asset managers in addition to several large green dedicated funds from Europe, Asia and the US.

In 2017, FAB was the pioneer in green bonds issuance in the MENA region, by issuing a $587m five-year green bond. Since then, FAB continued to focus on its green and sustainable-linked funding activity and issued over $2.8bn equivalent in green format across both public and private transactions, of which over $2.25bn are outstanding across 13 transactions and five different currencies.

So, what is the positive impact of these? We have created positive outcomes from many of the sustainable projects we’ve financed. These include 1,989,000 tonnes of carbon emissions avoided every year (total) from three solar projects. Additionally, seven green buildings we’ve financed have an estimdama 2 Pearl Rating for design; and the wastewater plant we’ve financed treats 430,000 m3 of wastewater a day.

Against the backdrop of the COP27 climate summit in Sharm El-Sheikh, Egypt, we believe there will be an even greater shift in demand for high-quality green financing solutions, specifically green bonds. As a regional pioneer and leader of this financial instrument, FAB will continue to offer its sustainable finance expertise and solutions to help businesses and nations make the transition to net zero.

Rula AlQadi is the managing director and head of group funding at First Abu Dhabi Bank