NBAD talks about sustainable finance
The National Bank of Abu Dhabi is the first bank in the region to set up a Sustainable Business team, with Nathan Weatherstone at the helm. Here, he talks to Business Review Middle East about sustainable finance.
Why was the decision taken to set up a Sustainable Business team at NBAD?
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. The data from NBAD’s Financing the Future of Energy report and our own analysis tells us that there is a large pool of profitable business to target in renewable energy alone, and sustainable business is much wider than clean power generation. In addition to that, over 20 percent of our large corporate clients are already active in sustainable business. Establishing a team dedicated to promoting sustainable business is our institutional response to the challenges and opportunities of one of the major issues of our time.
What is the ultimate goal for the team?
NBAD set a target of financing, investing or facilitating US$ 10 billion of sustainable business over the next ten years. This serves as both a statement of strategic intent and a direction of travel for the bank, and it is the Sustainable Business team’s responsibility to ensure that we achieve this target. We will do this through generating new business opportunities for new and existing core clients by seeking so far untapped but promising sources of business. At NBAD, we are positioning sustainability as one of our core focuses. We want to be the leading regional bank in sustainable business and have developed the architecture to be so.
Is there anything similar like it elsewhere in the UAE?
We are not aware of any other regional bank with a similar target or business focus. We are happy to commit to a long term target and join a platform shared by a handful of internationals banks - such as Citibank and Bank of America Merrill Lynch - that have done so elsewhere.
How is the department structured?
The team is growing and working across all banking sectors in order to maximise the impact. Sustainable Business banking is not confined to one team. It is here to generate business across the whole spectrum of the bank’s activities and product offerings. 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 the bank’s execution capability for the benefit of our clients.
What are the types of projects that you are investing in and financing?
We are generally adopting the sustainable definition set out in the Green Bond Principles issued by the International Capital Market Association (ICMA). They include 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 promotes modal shift from road to rail; sustainable water management; sustainable waste management; decarbonising technologies; climate change adaptation; as well as renewable energy projects. The USD 10 billion target is based on financing, investing or facilitating finance in the sustainable business arena. The most obvious form of financing will be direct lending for projects that are eligible. 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.
How does the team decide what constitutes a ‘sustainable’ project?
Our approach will be client driven and that is why our definition is relatively wide. We do not have a preference of one type of sustainable business activity over another. The team will become involved where our core clients have a touch point with one of these activities.
Is the team working in partnership with any other institutions?
NBAD partnered with the University of Cambridge and PricewaterhouseCoopers to produce the Financing the Future of Energy report. The management of the bank’s own sustainability footprint has been at the forefront of the region’s evolution in sustainability which has been recognised by a number of third parties. For example, NBAD was ranked among the top three organisations in the S&P/Hawkamah ESG Pan Arab Index for the 4th consecutive year, reflecting NBAD’s strong environmental, social and corporate governance practices and robust standing among publicly-traded MENA companies. Our Sustainability Report in 2015 aligned to international best practice in accordance with Global Reporting Initiative’s guidelines and we are to date the only regional bank to report our annual climate and carbon emissions data using the Carbon Disclosure Project. In future, the Sustainable Business team will be engaging a lot more with our core clients to full understand their needs and requirements and frame our institutional response.
How do you think the UAE (and the Middle East more widely) is positioned to make an impact on sustainable development?
We think the potential in the region is enormous. The demand for energy is huge 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 system in Abu Dhabi. We foresee planned clean transportation schemes such as metros and rail networks which will facilitate modal shift from cars and trucks to public transport and freight rail. And lately we have seen the ambition of solar projects in the GCC stepped up significantly. At our ‘Global Financial Markets Forum’ (GFMF) in Abu Dhabi in March 2015, 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.
How do you think NBAD can encourage further sustainable investment from the business community?
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. At NBAD, we are now positioning sustainability as one of our core focuses. As the leading bank in this region, we want and must show leadership in this sector. The good news is that we now 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.
Could you describe your background and why you were chosen to lead the team?
As a project financier for the best part of the previous two decades, evaluating the social and environmental aspects of major capital projects has always been a feature of my previous work, particular with respect to the Equator Principles (which is the international benchmark for identifying, measuring and managing social and environmental risks in projects – and I’m pleased that NBAD was the first bank in the UAE to sign up to the Equator Principles). Given that my team will bridge between our sector relationship teams and our product and lending specialists, the bank required somebody who had seen all aspects of the business cycle. We have also imported some environmental consultancy skill sets into my team to augmented our technical competencies.
Can you describe the engagement programme you have undertaken with key regulators and policy makers?
NBAD has always had a very strong corporate sustainability practice. We have maintained a top three position in the Hawkamah sustainability index for the last four years and our Corporate Sustainability colleagues pay a lot of attention to keeping our own house in order. 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.
Which areas of sustainability do you think offer the best opportunities for NBAD?
The regional sustainable business market is characterised by government-sponsored 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, meaning our initial focus will be on serving our large corportate clients. Again, wherever our core clients have a touch point with one or another of these activities our team will become involved. In time, we would also expect an enterprise-driven culture to develop which will be more inclusive of the SME sector, particularly when the trend for subsidy removal matures further. 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.
Read the May 2016 issue of Business Review Middle East magazine