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Wednesday, 16 November 2022

The Enterprise Climate CEO Poll: Joel Van Dusen, head of corporate and investment banking at Mashreq

Enterprise Climate CEO Poll- Joel Van Dusen: With just a few days to go until COP27 winds down in Sharm El Sheikh, we continue our inaugural Climate CEO Poll in EnterpriseAm and Enterprise PM. Our series of interviews with top C-suite execs and business leaders covers key issues being raised at the summit, including climate finance, regulation, and the green economy.

Joel Van Dusen (LinkedIn) is group head of corporate and investment banking at Mashreq, the oldest privately owned bank in the UAE. Listed on the Dubai stock exchange, Mashreq has a full-service arm in Egypt and offices around the world, including major financial centers in Europe, Asia, Africa and the United States. Joel spoke with us from Dubai, just hours after returning from COP27 in Sharm El Sheikh. Edited excerpts of our conversation:

JOEL VAN DUSEN: Sustainable finance is a very broad category, from project finance for renewable energy to transition, adaptation and sustainability-linked financing. What we’re seeing now across the business is growing appetite for sustainability-linked finance, which links the cost of financing to a company’s progress on both the sustainable development goals (SGDs) that are most relevant to them as well as to their business goals.

The thing I like most about sustainability-linked finance is that it’s not just about energy. It’s creating broad awareness among manufacturers, retailers, and businesses in the service industry, to name but a few.

We’ve done about USD 13.5 bn in sustainability-linked and green finance in the past two years, including transactions on which we were the sustainability coordinator. That’s when we bring in an outside consultant to work with us and the company to think through both business and sustainability goals so that they can get a handle on the progress to which they should be committing. Because when they commit, it is public. They benefit from pricing if they hit their targets, of course, but this is playing out in the public eye, which is an additional factor for them to consider.

Our biggest transaction was with Noga Holding out of Bahrain, which manages the kingdom’s oil and gas assets. As part of a USD 2.2 bn facility, they set out social targets, but the big emphasis was on emission reduction in increments through to 2030. In the first few years, they’ll address low-hanging fruit in their supply chain and other efficiencies, but in the medium term, they’ll need to invest in technology and really rethink core aspects of their business model.

Not everything has to be project financing for renewables. Sustainability-linked finance speaks to companies across sectors that’s getting educated about the issue, where management is having its first conversations with the board about setting goals. Get 1k companies talking about cutting emissions and the impact is just as good as a big solar transaction.

ENTERPRISE: Let’s unpack adaptation finance for a moment.

JVD: I’m really passionate about this segment. The push by the governments of Egypt, the UAE and Saudi Arabia have driven a lot of activity in finance for renewables. We’re seeing strong emerging demand for sustainability-linked finance. And as a part of the world that’s dominant in the oil and gas industry, we’re seeing a lot of emphasis on transition financing.

But I hope we see more on the adaptation front. Water and drought are going to be huge topics across Africa and the Middle East. We’ve worked on adaptation finance worth about USD 1.35 bn with a big emphasis on water projects in Egypt, Bahrain, Qatar and the UAE, where we’re supporting contractors building those facilities. It’s going to be a fast-growing segment in the years to come.

E: Is appetite for climate finance growing among businesses and investors?

JVD: Investor appetite is very strong. We had demand for well over USD 4 bn on Noga Holding, for example — for more than twice what we were offering. And we’re seeing growing awareness among our corporate clients.

Two things are driving appetite among corporations. First, many of our clients are very large, so they have, in some cases, foreign investors as well as local sophisticated investors who are helping drive the conversation. Management teams are responding to that interest and increasingly addressing sustainability goals at the board level. And secondly, we see a lot of progress on the regulatory front, whether that’s in the GCC or in Africa. Government regulation is driving demand for the awareness, goal setting and the resultant financing demand. I’m confident enough in the expansion of demand that we’re growing the team on the ground.

Banks have a fundamental role to play in creating demand for sustainability financing. We’ve got the connectivity to clients, we understand their businesses and strategies, we can help educate them, help them think through their goals and codify them. Just as we help them think about how to grow their business and optimize their capital structures, optimizing operations, we can discuss their ESG goals. Relationship managers need to do more than have conversations about commercial and investment banking products — they need to talk about climate and ESG and embed this in the dialogue.

E: What products do you see in other markets that are still not here in MENA?

JVD: An active carbon trading market, for sure. You saw the EGX announce a voluntary carbon market at COP27, and that’s a great step in the right direction. I think we’re looking for something that’s not necessarily siloed by country, but that’s collective and coordinated among several large countries.

E: What do we need to see for carbon trading to become mainstream?

JVD: It goes back to what I was saying earlier about regulation. Having multiple exchanges interested — in KSA, the UAE, Egypt — is important, but the big thing is rules and regulations about how the credits work. And this is critical — to get to net zero, we need to see robust markets for carbon credits. And remember: A lot of the talk about carbon credits centers on the buyers, but it’s also about who is selling; proceeds from the sale can become a form of climate finance in itself.

E: What will make COP27 a success in your view?

JVD: If you think about COP26, it was the first year that we saw finance come to the fore as a major component of the dialogue. That was the first year people really asked, “How do we pay for it?” That has really matured at COP27 in Egypt, where we’ve seen some really good conversations on finance.

But what I really hope to see come out of COP27 and COP28 next year in the UAE are good conversations about rules and regulations for sustainable finance. The International Sustainability Standards Board will be key. Look at what IFRS did for capital flows: Capital flows better when there’s a level playing field, when everyone is speaking in the same terms about the same thing. It allows comparable analysis. The same thing can happen with climate finance when there are consistent rules and regulations in place — that will drive capital to the projects that need it.

Having common standards for disclosures and how you count everything that needs to be counted will also tamp down the discussion about greenwashing. How do we verify and validate all of these promises that are made? These measurements that are given?

E: So we’re looking at the audit and assurance firms?

JVD: Them and the consulting firms. They are going to play a fundamental role in validating and verifying all the KPIs that companies sign up for in their sustainable financing. There needs to be a credible third party that says a company did or didn’t meet its emission reduction target. This should be no different than anything else in the world that gets counted and verified.

Otherwise, I think the big thing to look for between COP27 and COP28 — it really is a two-year process — is the coming together of consistent reporting rules, dialogue on

carbon trading platforms and, in parallel, more discussion of adaptation finance.

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