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$10 bn in 10 years to finance Sustainable Business

 

INTERVIEW: Nathan Weatherstone, Head of Sustainable Business at NBAD

On the occasion of the World Future Energy Summit (WFES) 2016, NBAD has committed to lend, invest and facilitate a total of US$10 billion of financing within the next 10 years to projects focussed on environmentally sustainable activities. The commitment, which is a first for a GCC bank, supports the research from NBAD’s ‘Financing the Future of Energy Report’, that identified a funding gap of US$48 trillion required in the next 20 years to meet global energy demand, with renewables playing a critical role in the energy mix of the future.

Nathan Weatherstone gives insight on his team’s strategy for the decade ahead.

"We want to be the leading Middle Eastern bank in sustainable business"

Abu Dhabi, 17 January 2016

  • What exactly does this commitment to US$10 billion in sustainability banking mean?
    Nathan Weatherstone: We want to promote sustainable business, that is, activities that are environmentally and socially sustainable. The bank has set the US$ 10 billion target as both a statement of strategic intent and a direction of travel. We are committing to supporting sustainable business because we think that environmental considerations and sustainability will be one of the enduring forces shaping the business world of the future and we can see significant opportunities for the bank. In fact, over 20% of our large corporate clients are already active in sustainable business so to this extent, we are responding to our clients needs but in a more focused and specific way going forward. We want to be the leading regional bank in sustainable business. No other bank in the region has a similar target and we are happy to commit to a long term target in the same way that banks such as Citibank and Bank of America Merrill Lynch have done elsewhere.

  • Did you launch this new activity based on the report “Financing the Future of Energy” that you commissioned last year from the University of Cambridge and PricewaterhouseCoopers?
    The report was launched in March last year and some of its findings surprised us. It told us that the global demand for additional energy was very significant - US$ 48 trillion over the next 30 years - and that the rate of demand in MENA was increasing at three times the global average. It told us that renewables was already an established part of the energy mix elsewhere, with more than half of investment into power infrastructure in 2014 being in renewable technologies. And it told us that renewable energy was highly competitive in comparison with the alternatives and equivalent with oil at US$ 10 per barrel. $48 trillion is a significant funding gap and we believe that private capital will be needed to meet the scale of the requirement. Based on this, we think there is a significant opportunity for banks and the financial community to support the power sector and in particular, act as a catalytic force in the transition to an energy mix in which renewable is more integrated.

  • What does Sustainability Business banking mean? Is it mainly renewable energy?
    Renewables is an important part of the sustainable business spectrum but we want to cover more than simply clean power generation. NBAD’s definition of sustainable business is largely based on the areas set out in the Green Bond Principles issued by the International Capital Market Association (ICMA), and includes:
    • energy efficiency programmes such as retrofitting energy management systems to make buildings operate more sustainably;
    • green real estate development with reduced power and water consumption;
    • clean transportation that takes cars and trucks off the roads;
    • sustainable water management;
    • sustainable waste management;
    • decarbonizing technologies;
    • climate change adaptation; as well as
    • renewable energy.

  • Which of these sectors will you focus on?
    We do not have a preference of one type of sustainable business activity over another. Our approach will be client driven and that is why our definition is relatively wide. The sustainable business team will become involved where our core clients have a touch point with one of these activities. My team will bridge between our client-facing coverage teams and our product specialists and over time, we will build up a deeper understanding of the sector to enhance our execution capability for the benefit of our clients.

  • Do you have any geographical priorities?
    The $10 billion target will apply across our full product range and is not geographically constrained. This is a bank-wide target so where the bank transacts, the target will apply. We operate across 5 continents in 18 countries and have defined a West-East Corridor as our primary target, a super-region stretching from the west coast of Africa through to South East Asia, including MENA, the GCC and India.  Our strategy remains focused on supporting economic growth and financing transformative projects across this Corridor although we would expect a significant proportion of the US$10 billion to happen locally in the first few years.

  • What kind of financing tools will you make available?
    The target is based on lending, investing and facilitating finance for sustainable business activities. The most obvious form of financing will be direct lending for projects that are eligible and within those defined sectors. But it is also about facilitating finance from others where we underwrite and distribute via our syndications practice, advising on eligible project financings to raise debt and equity or taking bookrunner or lead manager positions on eligible bond transactions. The regional sustainable business markets is characterised by government initiatives at the current stage of its evolution and because of this, our banking response tends to be focused on tailored financial products for our clients. We believe that in time, an enterprise culture will develop around the industry and we will be able to offer widespread support to the SMEs involved in sustainable business.

  • Why open a new business unit at one of the most challenging moments economically speaking with declining oil prices?
    I’d argue that it is more important to seek new sources of business in times of economic headwinds. If US$ 30 oil currently presents a hurdle, our view is that it will be that will be surmounted through technology innovation and increasing cost competitiveness in the industry. Since launching the Financing the Future of Energy report, a lot has happened in the energy and commodity sector but we have observed the growth of renewables in MENA is actually accelerating – by way of an example of sustainable business. The underlying drivers towards renewables and low carbon energy are long term: the looming gap between demand and supply that needs to be filled; government commitments to decarbonize economies and the desire of nations around the world to diversify sources of supply. These are all trends that are here to stay and, we believe, offer a significant opportunity to the financial community. The direction of travel is clear.

  • So you think that Sustainable Business banking is profitable?
    Yes, absolutely! We see economically viable projects supported by strong government policy commitments and our core clients transacting more sustainable business on a commercial basis across the West to East Corridor. Of course, the US$ 10 billion commitment is not a promise to support every piece of sustainable activity that the bank is asked to consider and NBAD will always continue to uphold the highest standards of credit risk management. But the data from the Financing the Future of Energy report and our own analysis tells us that there is a large pool of profitable business to target.

  • Will US$ 10 billion be enough?
    If you look at the track record of bank financed sustainable business activities, we are starting from a relatively low point in terms of both number of projects and volume of debt. There have been only a small number of deals in the Middle East region that have been privately financed that would qualify under our sustainable business definition, although there have been more which have been funded by government grants. For example, I can think of just two renewable deals in the UAE that have been financed by banks. So from this perspective, the US$ 10 billion target is significant. Looking forward, we do see very good prospects. To use an analogy: if sustainable business is a plane sitting on a runway and we all expect it to take off in the near future (as it has done elsewhere), then in the MENA region context, it is still waiting for clearance to fly from air traffic control. But we do see this changing in the near future.

  • Is there really a sustainability market in this oil producing region?
    We think the potential is enormous. The demand for energy is huge in the region and we know already that renewables will form a material part of that: the UAE government alone has committed to AED 72 billion to renewable energy by 2021 and we have other initiatives to promote sustainability in examples such as the Estidama real estate rating in Abu Dhabi. We foresee clean transportation schemes such as planned metros and rail networks which will facilitate model shift from cars and trucks to public transport and freight rail. And lately we have seen the ambition of solar projects in the UAE stepped up significantly. At our Global Financial Markets Forum in Abu Dhabi in March of last year, we had the CEO of Kuwait Petroleum Company explain why renewable was an important driver of his company’s future thinking We think that the scale of sustainable business will only snowball going forward.

  • Where has NBAD’s position been so far in terms of sustainability as a principle?
    NBAD has always had a very strong corporate sustainability practice. We have maintained a top 3 position in the Hawkamah sustainability index for the last 4 years and our Corporate Sustainability colleagues pay a lot of attention to keeping our own house in order. Further, we are the only UAE bank to We were also the first UAE bank to commit to the Equator Principles, the global benchmark that obliges us to follow international best practices when it comes to environmental and social analysis and risk evaluation. What we want to do is to expand this into a way that we interact with our clients.

  • Does it mean that you will stop supporting clients who are not green?
    The 10 x 10 target is not about business prevention, nor is it about not writing profitable business. We are a bank and have a responsibility to generate returns for our shareholders. Rather, this is about exploring how we can further promote our credentials in an emerging business sector. At NBAD, we are positioning sustainability as one of our core focuses. As the world is changing, our core clients are also changing. We now have a large universe of clients who want and need a specialist capability in sustainable financing. As the leading bank in this region, we know we want to - and must - show leadership in this sector.

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