Hay fire or lasting impact of Greta’s shadow?

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1. IFN SECTOR CORRESPONDENT Hay ϐire or lasting impact of Greta’s shadow? LAW By Dr Nicolas Bremer Sustainability has been one of the most discussed issues over the past month. In particular, prominent activists such as Greta Thunberg and the global Fridays For Future movement have captured widespread attention and continue to dominate the headlines. However, sustainability gathers traction far beyond the sphere of activists and protesters. Heads of states have picked up the topic and the role of the economy in shaping a more sustainable future is widely discussed at the World Economic Forum in Davos this year. This widespread discussion of sustainability will likely also affect the finance sector. While individual institutions have promoted sustainable finance and responsible investment for some time now, sustainable and responsible finance has thus far played a minor role. This may change when growing concern for sustainability among investors increases the market for responsible investments. The UAE has now taken a first step to strengthen sustainability in the finance industry. Leading financial authorities in the UAE have joined hands to promote sustainability in the UAE’s finance and banking sector by publishing the country’s first set of Guiding Principles on Sustainable Finance (the Guiding Principles). The Guiding Principles seek to encourage banks and other finance firms to implement and further extend sustainable practices. While the Guiding Principles remain high-level, the fact that key financial authorities in the UAE — such as the regulator of the Abu Dhabi Global Market — participated in the accord shows a broad commitment of the UAE’s financial regulators to the country’s sustainable development goals and the UAE’s commitments to the Paris Agreement. While similar guidelines have been issued in other jurisdictions, the Guiding Principles reference Islamic finance in the context of sustainable finance. By including Islamic finance, the Guiding Principles recognize the © unique contributions Islamic finance can make in increasing sustainability in the financial industry. The underlying ethical perspective guiding regulations of Islamic finance creates synergies between responsible finance initiatives in the conventional finance industry and Islamic finance. Aside from sustainability in respect to environmental and humanitarian goals, Islamic finance also includes a strong commitment to balancing interests between borrowers and lenders and removing opportunities for exploitation. In particular, Islamic finance is driven by efforts to promote social and governance considerations in lending and investment transactions by minimizing risks associated with excessive reliance on debt. As such, Islamic finance offers an effective tool for balancing economic interests with social as well as environmental considerations. This link between Islamic finance and environmental considerations is not an abstract model anymore. Significant UAE institutions have picked up this concept in their financing strategies. For instance, the Abu Dhabi Department of Energy recently started consultations on the development of a green bond standard. The UAE Authority of Social Contribution also announced its plans to issue a social impact bond this year. These efforts to implement and expand sustainability in the UAE financial industry, together with the ethical coloration of Islamic finance, harbor a substantial potential for growth in the UAE Islamic finance sector. It remains to be seen whether institutions can capitalize on these opportunities and whether investor demand will support the initiative to increase sustainability in the (Islamic) finance industry. The current popularity of the topic appears to suggest this. Dr Nicolas Bremer is a partner at Alexander & Partner. He can be contacted at nb@ alexander-partner.com. FRESH PERSPECTIVES HELP YOU RISE ABOVE Offering Middle East-based clients a wide range of award winning and innovative Islamic transaction solutions, the Maples Group delivers the highest standard of legal, fund and fiduciary services our clients expect. LEGAL SERVICES FIDUCIARY SERVICES FUND SERVICES REGULATORY & COMPLIANCE ENTITY FORMATION & MANAGEMENT maples.com/dubai 20 29th January 2020