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SCB Saadiq Sustainable Finance Cases

IM Insights
By IM Insights
1 year ago
SCB Saadiq Sustainable Finance Cases

Islamic banking, Shariah, Shariah compliant, Sukuk, Green Sukuk

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  1. Feature Islamic sustainable financing : The case of Standard Chartered Saadiq Background which sets out how the bank integrates sustainability into its organizational decision-making. The UN’s 17 Sustainable Development Goals (SDGs) are not only ambitious but extremely significant in addressing the challenges faced currently by humanity and the environment. The achievement of these goals requires unprecedented mobilization of resources and collaboration across the globe among the governments and the private sector. The financial sector has to play a pivotal role as an intermediary in funding projects that are aligned with the SDGs. SC’s vision is to become the world’s most sustainable and responsible bank, committing to sustainable, social and economic development through its three pillars of business, operations and communities. In alignment with its stakeholders’ priorities, in 2021, the bank formally elevated sustainability to be a pillar of the bank’s strategy. In the same year, the bank also announced its net-zero pathway to reach net zero in its operations by 2025, and in its financing by 2050. The aspirations for human dignity, public interest, a sustainable world and ‘to leave no one behind’ inherently resonate with the intended outcomes of Islamic finance (the objectives of Shariah). The objective of Shariah takes into consideration the various dimensions of human needs, ie protection of religion, life, lineage, intellect and property. The Islamic financial system strives for a just, fair and balanced society where the wealth is earned and distributed in a sustainable manner. Therefore, the Islamic financial industry, with an expected US$3.5 trillion in assets in 2021, has the potential to be a meaningful source of financing to advance SDG implementation. SCB Saadiq Inspired by the Arabic word for ‘truthful’, Saadiq is SC’s global Islamic banking network, spanning Asia, Africa and the Middle East. With our dedicated Islamic banking team working alongside a renowned advisory committee of scholars — as well as local Shariah supervisory committees for Pakistan, the UAE and Malaysia — we combine deep Shariah expertise with strong business acumen. As part of SC’s policy, at Saadiq, we aspire to make the world a better, cleaner and safer place and minimize the negative impact of our financing, balanced by our mission of enabling a just transition. SCB’s sustainability vision As a signatory of the UN SDGs, Standard Chartered (SC) is also supporting the agenda of sustainable finance. SC is committed to sustainable, social and economic development through business, operations and communities. For over 150 years, SC has provided banking services that help people and companies to succeed, creating wealth, jobs and growth across some of the world’s most dynamic regions — Asia, Africa and the Middle East. The bank does so sustainably and equitably in line with its core purpose and three-valued behaviors: ‘Never settle’, ‘Better together’ and ‘Do the right thing’. In 2018, the bank released its ‘Sustainability Philosophy’, Sustainable financing through Saadiq According to the SC Group’s strategy, Saadiq aims to support the following SDGs through Islamic finance: Goal 1: No Poverty. Goal 3: Good Health and Well-being. Goal 4: Quality Education. Goal 6: Clean Water and Sanitation. Goal 7: Affordable and Clean Energy. Goal 9: Industry, Innovation and Infrastructure. Figure 1: A summary of the SCB 2021 Sustainable Finance Impact Report 9.2 billion 1.4 million Sustainable assets in our sustainable finance portfolio - 138% increase year on year tonnes of CO2 emissions avoided operational assets Over Over Over 70% 84% 540,000 of our sustainable finance assets are located in emerging and developing economies of our sustainable finance assets located in Asia, Africa and the Middle East tonnes of CO2 emissions avoided from assets in construction Over Nearly 885,000 20,000 Sustainable assets in our sustainable finance portfolio - 138% increase year on year SME loans disbursed Source: Standard Chartered Bank Sustainable Finance Impact Report 2021 © 21 IFN OnAir Roadshow Report 2022
  2. Feature Table 1 : Some key sustainable financing projects led by Saadiq globally Transactions Sustainable impacts 1. On the 18th June 2020, SC Saadiq, acting as a joint lead manager and joint bookrunner, successfully priced a US$1.5 billion five-year COVID-19 response Sukuk facility at a profit rate of 0.91% per annum. The issuance was a drawdown under the IsDB’s US$25 billion Trust Certificate Issuance and Sustainable Finance Framework. It represents the IsDB’s second sustainable issuance in the public markets. Proceeds from the debut sustainability issuance are exclusively deployed by the IsDB for its 57 member countries, to assist them in tackling the aftermath of the COVID-19 pandemic. The targeted SDGs are Goal 3: Good Health and Well-Being and Goal 8: Decent Work and Economic Growth. It is a trademark transaction as being the first-ever COVID-19 response Sukuk and the lowest-ever profit rate achieved on a US dollar public Sukuk issuance by the IsDB. The deal further cements our leadership in the green and sustainable finance space and reinforces SC’s relationship with the IsDB after winning 18 consecutive mandates from the bank. In the broader region, SCB is ranked No 1 in MENA Sukuk and MENA Government and Agencies League tables. The success of this transaction in terms of pricing, size and strong investor interest reflects the great development in the Islamic sustainable market which has seen a boom in the issuance of social Sukuk since the start of COVID-19. 2. In 2019, SC Saadiq as a joint global coordinator and joint sustainability structuring agent arranged US$600 millionworth of Sukuk for Etihad Airways, the national airline of the UAE. It is the world’s first transition Sukuk and the first sustainability-linked financing in global aviation, under the Transition Finance Framework. The transaction will support Etihad’s drive for sustainable aviation by linking the Sukuk proceeds to Etihad’s carbon reduction targets: a commitment to net-zero carbon emissions by 2050, a 50% reduction in net emissions by 2035 and a 20% reduction in emissions intensity in the airline’s passenger fleet by 2025. 3. This year, SC Saadiq helped the government of Indonesia as a bookrunner and structuring advisor to raise US$3.25 billion through US dollar-denominated Sukuk with 5-year and 10year tenors. The 10-year green Sukuk tranche is the country's biggest global Sukuk issuance and the largest green Sukuk tranche ever issued globally. Despite ongoing market volatility surrounding rates, the transaction was very well received and was oversubscribed by more than three times, enabling the government of Indonesia to tighten aggressively by 35–40bps across both tranches. The proceeds will be used for general financing requirements and to finance or refinance “eligible SDGs expenditures with green and blue focus” as defined in the obligor’s SDGs Government Securities Framework. 4. In February 2022, SC Saadiq supported Riyad Bank to successfully issue the world’s first US$750 million Tier 1 sustainability Sukuk. The profit rate of 4% per annum is equivalent to the lowest credit spread ever achieved by a GCC bank for an additional Tier 1 Sukuk. The orderbook was 4.3 times oversubscribed with demand peaking at US$3.2 billion, most of which was allocated to banks and fund managers. The proceeds will be used as per the issuer’s Sustainable Finance Framework in line with the International Capital Market Association’s green, social and sustainability principles and Saudi Arabia’s Vision 2030. The framework covers a diverse range of eligible sustainable activities. 5. In 2020, SC Saadiq also helped Saudi Electricity Company as a joint lead manager and bookrunner to raise US$13 billion through international green Sukuk. The dual-tranche five-year and 10-year Sukuk, listed on the Irish Stock Exchange, were oversubscribed four times with total orders for both tranches exceeding US$5.2 billion. High interest was received from investors in the Middle East, Asia and Europe. The proceeds from the Sukuk will be used to finance eligible green projects that will help contribute to climate change mitigation. This includes procuring and installing smart meters, a method of creating potential energy consumption savings and potentially reducing or avoiding carbon emissions, according to the company. 6. Recently, CIMB Islamic Bank Bhd has entered into a RM1 billion (US$216.8 million) landmark sustainable collateralized commodity murabahah (CCM) transaction with Standard Chartered Saadiq Malaysia. The proceeds of the CCM will be earmarked for eligible Shariah compliant assets that fall within the boundaries of CIMB Group’s Sustainable Development Goals Bond and Sukuk Framework. This kind of facility is also crucial for most central banks with open market operations to adjust liquidity in the financial system. Flagship deals like these are a testament of SC Saadiq’s devotion to providing innovative and commercially viable solutions for the business sector with a blend of Shariah compliant and environment-friendly features. This also demonstrates investors’ and issuers’ trust and confidence in the SC Islamic banking franchise for its rich and diversified experience in structuring expertise and effective deal execution. © Dr Ehsanullah Agha is the associate director of the Internal Shariah Control Division at SCB UAE and Sheikh Muhammad Abdul Mubeen is the SCB Group Shariah head. 22 IFN OnAir Roadshow Report 2022