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19 January, 2022

Sustainability lessons for banks and fintechs from Dubai International Financial Centre

The UAE is taking a leading role on the global stage when it comes to environmental, social and governance transformation.

Today, economies face new environmental, social and governance challenges, and with the UAE aiming to reach net-zero carbon emissions by 2050, Dubai is becoming the region’s centre for sustainable finance. Dubai International Financial Centre (DIFC) is leading the way on the sustainable practices that will safeguard both finance and the environment, providing a powerful model for banks and fintechs across the region and the world.

The financial services sector has the power to push forward sustainable innovations by targeting investment and impact change in vital areas.

“Today, the market capitalisation of ESG [environmental, social and governance]-inspired sukuk and bonds is growing at a high pace in DIFC, now making up over 10% of the total outstanding bonds, in excess of $10bn,” says Arif Amiri, CEO of DIFC.

“DIFC and its clients lead the way on sustainable finance in the region, and ESG principles are considered in over 80% of their operation and business decisions. Our enabling platform sees bankers, advisors and professional services firms collaborating on preparing regional and global deals, as well as issuances that have sustainable principles at their core.

“Collectively, we are shaping the future of finance.”

Sustainability through innovation

The UAE is taking a leading role on the global stage when it comes to ESG transformation. This year, it announced its 2050 net-zero plan and $163bn investment in renewable energy. The country will also host COP28 in 2023, a testament to its commitment to green transformation on a global scale.

In May 2021, His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, issued a new law that expanded DIFC’s strategic objectives to include advancing sustainable economic growth and developing and diversifying its economy.

As part of its 2024 Strategy, DIFC’s Sustainability Initiatives aim to sustain the environment, engage the community and benefit those in need, approaching sustainability from ESG perspectives.

Dubai is the region’s best venue for ESG issuance and listing. The Dubai Financial Market (DFM) and DIFC-owned corporate government institute Hawkamah have helped to develop the S&P Hawkamah UAE ESG Index of 20 sustainable UAE-listed companies, which will guide investors and accelerate sustainable investment.

Sustainable issuance and investing

The Dubai Sustainable Finance Working Group was launched by DFM and DIFC in 2019 to coordinate efforts to create the region’s most sustainable financial hub. A partly government-led, multi-stakeholder group bringing together representatives of global and regional investment banks, leading sustainable companies, financial institutions, exchanges and public and private organisations including Nasdaq Dubai, the Group has four pillars: responsible business operations, responsible investing, growing sustainable finance, and diversity and inclusion.

To accelerate Dubai’s leading position and expand ESG and sustainable finance, the Group recently launched two guides.

“Best practice is now being shared by our clients in the form of two guides, which will stimulate further progress relating to sustainable finance and reinforcing Dubai’s position as the region’s most sustainable financial hub,” says Amiri.

The Sustainable Investing Guide highlights increasing ESG opportunities for investors – and DIFC is home to a wealth of such opportunities, as Amiri explains.

“Our vast community of over 250 wealth and asset management firms are changing the market for the better by offering investments that deliver social and environmental impacts as well as a financial return,” he says. Banks and exchanges are among the other companies that also play an essential role.

The Sustainable Issuance Guide details the steps to issue ESG bonds, Sukuk, equities and other financial products.

Sustainable financial practices must be underpinned by regulation, and the DFSA is actively involved in numerous sustainability-oriented regulatory groups, including the Network for Greening the Financial System and the UAE Sustainable Finance Working Group.

In November 2021, the DFSA launched the Task Force on Sustainable Finance (TFSF). Comprised of members of 12 DIFC-based entities, the TFSF aims to drive forward discussions on sustainable finance.

Sustainable innovation

As sustainable practices shape the future of finance, continuing education and innovation are essential.

This year, the DIFC Academy and Candriam Academy, a recognised pioneer and leader in sustainable investing that manages more than $50bn in pure ESG funds and mandates, introduced the world’s first free-to-access accredited training platform for sustainable and responsible investing.

And DIFC is supporting sustainable innovation as a priority. Its Innovation Hub gives entrepreneurs the support they need to develop essential innovations within a supportive ecosystem.

Sustainability will be key to the future of finance, and Dubai is driving the way forward. DIFC offers banks and financial institutions the innovation support, regulatory stability and opportunities they need to embrace it.

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