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Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a Senior Writer on the Sustainable1 Thought Leadership team.

Lindsey Hall: Welcome to ESG Insider, an S&P Global podcast, where Esther and I take you inside the environmental, social and governance issues that are shaping the rapidly evolving sustainability landscape.

For the past few episodes, we've been bringing you coverage of Climate Week NYC and conversations we had there.

Many of those conversations were looking ahead to another big climate event, that's the UN's annual Climate Change Conference of the Parties or COP. This year's climate gathering, COP29 will take place in Baku, Azerbaijan, starting November 11. And one idea I heard repeatedly in New York was that this will be the so-called Finance COP.

Esther Whieldon: So what does that actually mean? Well, let's start with a reminder about what happened at last year's COP28 gathering in Dubai. COP28 was notable because it brought the first ever global stocktake. That's a process in which countries assess progress towards meeting their goals of the 2015 Paris Agreement on climate change.

Among other things, the stocktake highlights that the adaptation finance needs of developing countries are estimated at up to $387 billion annually up until 2030. And we heard repeatedly at COP28 that the public and private sector will play a pivotal role in addressing the massive climate finance gap. 

Lindsey Hall: And at Climate Week in 2024, many discussions focused on how blended finance could be leveraged to scale up climate investments and help bridge this growing climate finance gap in developing countries. Blended finance pools public sector or philanthropic funds together with private sector capital.

Ajay Banga described it another way. Ajay is President of the World Bank, and he was a keynote speaker at an event S&P Global hosted during Climate Week NYC. He described blended finance as "basically cheap money". He said it aims to provide a way to invest money in global public goods over the long term and things that don't pay you back in the short term.

In his remarks, he talked about the way the World Bank approaches this topic through its International Development Association arm, or IDA. And IDA essentially provides money to the world's poorest and least advantaged countries, either as complete grants, meaning no repayments, or as deeply concessional loans with 20-, 30- or 40-year time lines.

Most of these countries are currently in Africa, but Ajay noted that Japan used to be an IDA country. He said Japan's high-speed bullet trains were financed by the World Bank. South Korea, China, Turkey, India and Mexico are also examples he gave of former countries where IDA helped to provide access to blended finance.

When it comes to COP, what should we expect with regards to blended finance and other trends in sustainable finance? To get a better understanding, let's turn to today's first guest. He works for the largest bank in Dubai in the United Arab Emirates or UAE, where COP28 took place last year. And so he has some unique perspective on what hosting a COP can mean for an economy that's highly dependent on oil and gas.

Vijay Bains: My name is Vijay Bains, I'm the Group Chief Sustainability Officer for Emirates National Bank of Dubai based and headquartered in Dubai. We're the largest bank in Dubai, one of the largest in the Middle East. So I cover sustainable finance as well as our sustainability strategy.

Lindsey Hall: And this is such an important topic all year round, but already here at Climate Week in the first couple of days, I'm hearing so much discussion of climate finance and already people looking ahead to COP29, which takes place in about a month from now, and they're calling it the Finance COP. Are you hearing the same thing?

Vijay Bains: Hearing exactly the same thing. And for us, it's been many of our clients come to us for access to sustainable finance. And often that access becomes climate finance because measuring GHG emissions is one of the simplest ways of us measuring our impact as well.

The second area is, as you said, this does feel like the climate sustainable finance COP as well. And it feels like the time is now. A lot of those NDC commitments are becoming sustainable finance targets, which are being set to corporates as well.

And then I think the other big debate and discussion that's happening is access to capital is increasingly being linked to sustainability and increasingly linked to net zero as well. So definitely hearing a lot from our corporate clients as well as our institutional clients.

Lindsey Hall: You just heard Vijay mention NDCs, and those are nationally determined contributions or country's plans to reduce emissions and adapt to the impacts of climate change. Later, you'll hear him mention a couple of climate-related regulations like one from the SEC or the U.S. Securities and Exchange Commission and CSRD, that's the EU's Corporate Sustainability Reporting Directive. So Vijay told me he was hearing a lot of emphasis at Climate Week NYC on the role of blended finance.

Vijay Bains: The focus have already been on blended finance, the increasing role of blended finance, I think the increasing role that we actually need to finance all sectors for net zero. I attended a wonderful session earlier in the week talking about access to capital and a lot of sustainable finance goes towards transport.

So if we think about EV manufacturers in the U.S. and overseas. But actually, a lot of our sustainable finance needs to go towards agriculture, needs to go towards heavy industry and decarbonization. Now the challenge as a financier in the private sector is we need blended finance to derisk this.

We need to have a few support mechanisms to actually allow us to finance at a competitive rate as well. So blended finance have been a big theme. It was a big theme of last COP28, big theme of this COP and definitely the emerging theme of this New York Climate Week.

I think the second theme that's happened is really around sustainable finance becoming mainstream as well. So actually, it's not a matter of people needing to be told about green bonds or some of these different instruments, but already having quite sophisticated knowledge as well. But so actually setting their own kind of sustainable finance targets.

And I think thirdly, the time is now. 2030 targets are only around the corner. So I think this Climate Week as well, increasing the focus I've gone to that the Paris aligned targets, 1.5 degrees. Do we need to recalibrate? How can we reengineer our economy and our triggers to meet those net zero targets?

A lot of our clients are UAE and GCC clients. And you don't traditionally think of the UAE as a center for sustainability. I mean in the UAE, we have the highest GHG emissions per capita. So actually, we've got a big drive towards net zero. So a lot of our clients are some of the large airlines, some of the large construction companies that are looking to move to net zero.

Now we are, I think, the 12th largest financier for sustainable bonds in the world at the moment. So a lot of those syndicated bonds come through our desk. So many of the multinationals that you would have heard of as well.

And our role is really linking their sustainability criteria to the best, most ambitious goals as well. COP last year really acts as a bit of a lightning bolt for everyone to really pay attention and really understand that finance of the future is sustainable finance as well.

Lindsey Hall: I asked Vijay to elaborate on the idea of the Middle East not typically being viewed as a sustainable finance hub. You'll hear him mention a couple of acronyms in his answer: DIFC, that's the Dubai International Financial Centre, a financial hub in Dubai; ADGM, that's the Abu Dhabi Global Market, the financial center of Abu Dhabi and the UAE; and GCC, that's the Gulf Cooperation Council, a political and economic alliance of Middle Eastern countries.

Vijay Bains: I think many people when they think about Dubai, they think of the glamor, they think of the beaches, they think of the parties. But actually, it's a growing part of the global economy, a growing part of the financial economy as well. So in DIFC and ADGM as well in Dubai and Abu Dhabi, we have two of the biggest centers of capital in the world as well.

And what's emerged is many of the top 100 companies are releasing their sustainable finance reports, releasing their sustainable finance targets and have accessed green bonds last year as well. So we've seen about a 60% rise in sustainable finance year-on-year, which is a fantastic growth as well.

I think the second area of focus as well that's happened is many of those multinational companies have overseas subsidiaries in Europe and North America, so have been affected by SEC regulations or CSRD regulations as well. And I think as the GCC further integrates and diversifies away from oil, sustainability has been that agenda point.

And for ourselves as well, our fossil fuel finance emissions at the bank are less than 1%. Now that's quite an amazing stat to hear when many multinational banks are at 20%, and we are in the Middle East. So we can show that diversification can be really profitable and center to growth as well.

Lindsey Hall: Okay. I want to follow up on a couple of the numbers that you cited. So I think you said 60%, like 6-0 percent growth. What do you attribute that growth to? Why so much?

Vijay Bains: I think the driver was COP. COP really acts as a lightning bolt to explain to many, many people within the region and the global south as well of what sustainability is and also to say we all have a role within this. And I'll give you an example as well.

So in Dubai as well, we have some of the highest number of LEED Platinum and Gold buildings. Now that's an amazing stat and you think how. But then we kind of think the other side, say, it's one of the hottest place in the world. So energy efficiency is built into new building design.

And also, it's very well known that in the region as well, new cities, new townships are being developed, and those are increasingly aligned to already energy-efficient standards. So actually, there's a huge development opportunity within the region to meet net zero and to be energy efficient. And that's been instituted at the government level as well.

So we do have a really effective public-private partnership within the region as well, where we input to say, actually, we want these standards to be met. This will allow us to streamline reporting and also allow companies to get access to finance at the best rates. The government really works hand-in-hand with us as well. So that's really helped us grow.

I think secondly, a really favorable regulatory regime for sustainability. So quite a few regulations have come in, in the last 24 months around climate change, around sustainable finance, around Islamic sustainable finance as well. So actually, what that's done is provided a halo effect for sustainable finance, but it's growing.

And I think the third element is the 2030 vision in the UAE, which is talking about diversification. It's talking about sustainability. And this year, 2024 is now the year of sustainability. It's the second year of sustainability in the UAE's history following the COP year as well, and that has continued on that momentum.

Lindsey Hall: And when you say the year of sustainability, is that something the government has declared?

Vijay Bains: Yes. The government declares a year and then ask organizations to meet certain requirements as well and also say, what are you delivering for this year of sustainability as well. And many of our companies and clients come to us saying, how can you support us on that financing journey? What do we need to do?

Lindsey Hall: Okay. And then the other number I wanted to dig into was that 1%.

Vijay Bains: Yes, sure. So 1% of our financing book is rated to fossil fuel financing. So that's coal, oil and gas. Now that's a very deliberate choice where we have restricted certain fossil fuels. We have looked at our decarbonization strategy and made some very deliberate decisions there as well.

Now in Dubai, actually, the economy is less than 5% dependent on fossil fuels. And if we look back in the story of Dubai, it's been one of diversification. And the economy is dominated by the service sector, aviation, energy distribution as well. So our book reflects that as well.

But many of those decisions we've made have been made very deliberately to look at those net zero targets, look at actually where industries are aligning to as well. And also, if we have a look at many of the manufacturing clients we have in the UAE who export to the EU, a lot of carbon trade barriers are happening as well around the EU and around the world as well. So it's quite precinct in that way as well.

Lindsey Hall: Okay. That's a striking number, strikingly low. I think a lot of people when they think of the UAE, they think of sort of a petro state. Do you think that, that is changing?

Vijay Bains: So I think there is no doubt, fossil fuels plays a huge role in UAE and other GCC economies as well, but that diversification is on the way. And if I was drinking a glass of water in, say, COP28, it's generally fueled by renewable energy being extracted from the sea from reverse osmosis and using solar. Five years ago, that would have been oil and gas.

So that diversification is very much underway. The UAE has deliberately set a path for net zero with the NDC commitments and is continuing to do that year-on-year for the Ministry of Climate. And again, we're part of that public-private partnership and say, actually, there's a few more areas we probably need to decarbonize as well.

Lindsey Hall: I asked Vijay what big questions he has looking ahead to COP29.

Vijay Bains: I think for me, it's how can we scale finance. I think that's the key for me and making sure everyone is on the journey as well. We've got to really think that there are going to be winners and losers in this transition for net zero, and we've really got to think about the human factor here as well.

I think on the other side as well is to make sure that transition is cost effective. Transition finance is a big theme for this COP29 as well. I think climate finance is the key one for COP29, as you said. So government funding as well for those states most at risk of climate change because we are in climate adaptation as well this year. We've seen a lot of weather events, meteorological events as well that are attributed to climate change around the world as well.

So in the UAE, we saw the floods a few months ago, some of the largest floods in the country's history as well, in every country in the world, North American wildfires, storms in Northern Europe, we've seen that as well. So I think a big focus will be climate adaptation as well to say that actually as well as financing that future to net zero, we also need to make ourselves more climate resilient.

Lindsey Hall: And what are some of the conversations that you're having around adaptation and resilience? I'm also hearing those terms come up quite a bit.

Vijay Bains: I think it's really around protecting those most vulnerable to climate change. So making sure those most vulnerable from climate change aren't deinsured, aren't debanked, for example, and have the right support mechanisms.

I think the second thing is looking at actually how do you build climate resilient infrastructure. And I obviously think of the UAE, but I also think of Europe as well. I think of North America. I think of storm surges and once in 100-year events and now once in 10 years as well. So how do we finance that becomes absolutely key.

And actually, I think those partnerships between the government, the private sector and the public sector are absolutely key there as well because if I bought a home and I've invested in that, actually, it's heartbreaking to see that eroded in time, and we've seen it again around the world as well.

I think this final element is really around adaptation and support for transition to make sure no one is left behind. I think being in Dubai, we are at a crossroads between the west and the east. But we do look at the global south, and we want to make sure everyone is on that journey and benefits from that transition to net zero.

Lindsey Hall: So I've asked you a lot of questions, Vijay. What have I not asked that you think is important for our listeners to understand about the state of sustainable finance as we head into COP29?

Vijay Bains: No, thanks. And thank you for the questions, a lot have been fantastic. I think one of the key questions is I think we need to issue more products on the corporate side. I also want to get rid of that term sustainable finance. For me, I'd love sustainable finance. And we don't think about -- I'm old enough to remember the terms e-banking and digital banking. We don't talk about that. We just talk about banking.

Lindsey Hall: That's a very good point, yes.

Vijay Bains: So it's the same with sustainable finance transition. I just wanted to think about the outcomes of everything needs to be sustainable because we all need to reach those net zero goals to go. And I think on behalf of your listeners as well, myself as well, I want to say thank you. And I think mainstreaming all of our products to be sustainable is absolutely the end goal for us.

Lindsey Hall: And when you talk about products, where is that development going to happen?

Vijay Bains: I think transition finance is a big one. I think that transition, transition bonds, transition loans at the corporate entity level, I think that's a big missing market. We see it in Japan that's been developed already very well with the transition to net zero.

I think the other area as well is government lending being linked to sustainability. So in the EU and the kind of new green deal, a 30% linkage to sustainability is there. If that benchmark was set in each country, that provides a wonderful like pool of liquidity and certainty for private and public sector players as well.

And I think the final area is think about public access to sustainable finance. So if I make a renewable energy choice, can that be discounted? Because that will support the country's move to net zero. And that again takes public-private partnership down to an enterprise level.

And I think about my own family who talked to me about sustainable finance and say, can this be discounted, can this be done. I think about some of the rebates that happen as well around the world for EV purchases. If those can be done for renewable energy and other products, that actually brings it really back home for everyone. It touches everyone from charging your phone at home to working your laptop, it really touches everyone.

Lindsey Hall: So we heard from Vijay, how one big bank is approaching sustainable finance. He talked about how it's becoming more mainstream and how COP28 in Dubai last year really acted as a lightning bolt for sustainable finance in the Middle East. Vijay also talked about the role of blended finance and how the public and private sector can work together to bridge some of those climate finance gaps.

Esther Whieldon: That was a theme in my conversation with our next guest, too, Marina Severinovsky, who's Head of Sustainability, North America and Asset Manager at Schroders. In last week's episode, we heard from Marina how there was a lot of discussion at Climate Week around the need for engagement with policymakers as well as action by them.

We'll include a link to that episode in our show notes. Marina went on to describe some of the things that financial institutions need from governments to unlock private investments in climate and other sustainability issues. Here she is.

Marina Severinovsky: On net zero and nature positive transition, we're looking for establishment of policies at an industry and sector level that support transition and unlock private investment and importantly, the integration of nature into national government targets and sector transition plans.

The other piece of it for us is kind of, everyone calls it just transition, but we're just talking about kind of social inequity and that you have to establish a clear adaptation plan that addresses climate change and nature loss, but you address regional and demographic inequity in those transition policies.

And then really importantly, and again, this is a lot of what I've heard here around climate weakness here is the regulatory architecture that we need to establish clear and consistent minimum disclosure requirements, we need some interoperable taxonomies across different jurisdictions.

But another two that we put down that I haven't heard as much on, one is around establishing confidence through robust safeguards and oversight to address greenwashing. But I do want to say that on this, we feel like oversight and enforcement has to be proportionate and it has to recognize that there's a reality for firms and investors that we're navigating a really complex and rapidly evolving environment.

So like disproportionate enforcement or like really aggressive calling out of greenwashing, of perceived greenwashing, we think can undermine investment in transition because there's still data gaps, and so it's possible that decisions are made by corporates or investors in good faith based on the available data and analysis that later on turn out to be flawed because you have new data or new insights.

And so oversight and enforcement has to reflect this reality. Otherwise, you effectively like dampen people's enthusiasm, they get too nervous, right, to move forward. And you hear this a lot on the nature side where there's a lot of analysis paralysis on, "Well, we don't have enough data yet, so we don't want to overstep."

I think you have to make it a safer space to do that if your intentions are good and to sort of distinguish between the intent to mislead versus the intent to get information out there even though it's still imperfect. Another piece has been around emerging markets, right, making sure that you don't create a sort of dual, two different speeds of pathway, right?

On one hand, money is chasing a lot of developed markets companies, exciting new technologies and solutions. And then we leave behind some of the places where money is needed most. So I think that, too, right, to have that comfort of kind of policy direction helps that to not happen. And so I've seen that, too. There's definitely a lot of discussion of that.

Lindsey Hall: Marina and Vijay both talked about the importance of a just transition and the need to get climate finance flowing to the regions that need it most. This is also a key Climate Week takeaway from our last guest today, Prerna Divecha, Head of Climate and ESG Credit Risk Solutions at S&P Global Market Intelligence.

I sat down with Prerna on the sidelines of Climate Week NYC. And as you'll hear, she talks about the keynote remarks I mentioned at the top of the episode from World Bank President, Ajay Banga.

Prerna Divecha: Well, I think my key takeaway was from the World Bank fireside chat. It's interesting to see that capital is being deployed in the right way in the right sort of sectors, whether it's renewables, whether it's the electrification of transportation, whether it's new carbon capture technologies.

But what is still to be done is ensure that the transition is just. And what I mean by that is the capital allocation is still a lot concentrated in the global north and the deployment of that in the global south, where it would make, in fact, more impact is yet to be done.

And I think we, as a community of service providers that facilitate transition financing, assisting our bankers, investors, can definitely do a lot more in that space. So that really was moving to hear and my key takeaway from the week that was.

Lindsey Hall: So we covered a lot today. We heard about the need to scale and accelerate climate and clean energy financing and to do so rapidly. We also heard about the challenges and opportunities of climate adaptation and resilience, and we heard about the importance of a just transition.

Esther Whieldon: These are all themes we'll continue to cover ahead of COP29, the Finance COP. So please stay tuned.

Lindsey Hall: Thanks so much for listening to this episode of ESG Insider. If you like what you heard today, please subscribe, share and leave us a review wherever you get your podcast.

Esther Whieldon: And a special thanks to our agency partner, The 199. See you next time.

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