Green finance has become a toolkit for funding real assets that cut emissions, protect natural resources and harden economies against climate shocks, from solar parks and efficient factories to cleaner transport, water systems that waste less and infrastructure that withstands heat and floods.

Investors who once chased stories now demand numbers, asking how many megawatt hours will be saved, how many tonnes of carbon will be avoided and whether those claims will stand up to independent verification over time.

Green finance ties the use of proceeds or the performance of a borrower to quantifiable environmental outcomes that can be audited and priced, which is exactly what long-term capital wants in an era defined by risk, scrutiny and accountability.

For Oman, the alignment is straightforward, since the vision set by “Oman Vision 2040” calls for a more diversified economy built on innovation, skilled jobs and sustainability that preserves natural beauty while boosting global competitiveness and signalling seriousness to partners and markets.

The point is not to tick boxes for an external audience, it is to finance an economic transition that creates value locally, lowers costs of capital and strengthens the national balance sheet against volatility in a world already pricing climate risks.

Capital will not come because green is fashionable. It will come because projects can demonstrate clear benefits, present bankable documentation and deliver verified outcomes that de-risk investor decisions and justify better pricing and longer maturities.

The instruments are already proven, accessible and flexible enough to fit Omani priorities, which means the bottleneck is not novelty but execution with integrity. Green bonds and green loans direct money to labelled uses like solar generation, industrial retrofits or energy efficient desalination, where eligibility is clear, and the impacts can be tracked across the life of the asset.

Sustainability-linked loans and bonds go a step further by rewarding borrowers with lower coupons if they hit agreed performance targets, such as measurable reductions in energy use or increases in recycled water, which aligns incentives without restricting proceeds to a narrow list of assets.

Carbon markets can add a complementary revenue stream when projects produce verified emissions reductions, improving project economics and attracting international finance that wants both returns and impact.

When these tools are backed by honest data and credible reporting, the benefits compound, from access to new investor pools and longer duration money to a stronger national brand and more jobs across engineering, project finance, digital monitoring, maritime services, logistics and the circular economy that ties waste to opportunity.

Oman’s starting position is stronger than its critics concede, which is why urgency can coexist with confidence. Abundant solar and wind resources offer a comparative advantage for clean power and energy-intensive industries that want to decarbonise, while a strategic location and reliable institutions simplify supply chains and deal execution for investors who hate surprises more than anything else.

A growing base of industrial and logistics expertise means capability is not being built from zero, it is being upgraded for the next wave of investment in green hydrogen, power grids, storage and cleaner manufacturing, where scale, credibility and coordination determine winners.

Local banks are building the right teams and tools, while policymakers are giving explicit signals, with the Central Bank of Oman encouraging sustainable finance practices and transparent disclosures and capital market rules now enabling green and sustainability bonds and sukuk to be issued with confidence inside a clear framework.

Early movers matter in any market shift, and within banking, Sohar International has stepped out front by engaging clients, developing internal capacity and exploring climate-aligned lending so that more Omani projects qualify for green finance on terms that are fair, competitive and repeatable. This is how markets are built, by combining policy clarity with private capability and project-level data that turns goals into signed term sheets.

Proof beats promises

Green finance rewards clarity, and in Oman, clarity is beginning to deliver funding for real economy use cases, not just glossy brochures. In shipping and logistics, an Omani company secured a green loan from international lenders by presenting an energy efficiency business case grounded in data with a credible plan to cut fuel use and emissions that third parties could verify, which is the difference between a marketing deck and a financing package.

On rooftops and in small businesses, local retail programmes for solar and efficiency have already helped households and SMEs (small and medium businesses) lower bills, a reminder that the energy transition is not only about giga projects but about the cumulative effect of thousands of small decisions supported by accessible finance.

In heavy industry and energy, a coordinated push around green hydrogen has started to attract global developers who bring capital and technology, which is precisely the blend needed to derisk first movers and get steel in the ground.

The through line in each example is simple and repeatable, because clarity plus data equals money, and lenders will improve pricing and extend maturities when they can quantify savings or avoided emissions and see that those numbers have been independently checked.

This is how to turn climate objectives into competitive financing: by answering the two questions lenders always ask, how will this project perform under stress, and who will verify that it is doing what it claims as conditions change. When the answers are precise, prices improve, and when the answers are weak or vague, projects stall and costs rise, which is why internal discipline inside firms will be as important as external signalling by regulators.

Preparedness at the enterprise level is the fastest way to convert interest into funding, because the cheapest loan is the one that does not get delayed by missing documents and shifting targets. Start with a simple sustainability plan that explains the project, defines the expected environmental benefits and sets out how results will be measured, because lenders finance what they can underwrite, and underwriters need a plan they can file and revisit.

Build a baseline for emissions that covers Scope 1 and Scope 2 and the most material parts of Scope 3 where relevant, because credibility flows from showing where you stand before you promise how far you will go.

Choose the right instrument for the job. A green loan or bond, when the use of proceeds is clearly green and a sustainability-linked structure, when the goal is to improve performance over time across a broader corporate platform. Collect facts early, from feasibility studies and permits to signed contracts and a one-page summary that states impact per rial invested, because the summary focuses attention and the appendices carry the evidence.

Secure an external review to build trust and engage the bank at the start by asking what documentation, KPIs (key performance indicators) and reports it needs so that both sides are aligned on definitions, measurement and timing with no surprises later. This is about predictability, and predictable borrowers get better terms, more options and faster credit approvals from lenders trained to reward process discipline.

The system moves faster when everyone shares the same language and templates, which is why a “Green Finance Starter Programme” would pay for itself in velocity and volume. Many Omani SMEs want to participate but are unsure where to begin, so a national programme delivered through chambers and industry groups can teach teams to calculate a basic emissions baseline, select the right financing tool, prepare a short sustainability report and understand what assurance really means in practice.

Training must also target bankers, credit officers and FDI professionals, because deals close when borrowers and lenders align on eligibility, KPIs, verification and reporting, and that alignment comes from repeated conversations across a shared technical vocabulary.

Here, regulators can lean in with light but catalytic touch, as the Central Bank and investment authorities can back standard templates, share anonymised examples and celebrate early successes to create demonstration effects that pull others into the pipeline.

The outcome is not bureaucracy, it is speed, because standardisation reduces ambiguity, reduces legal opinions and reduces time to funds disbursement for projects that meet the criteria. The more predictable the process, the lower the risk premium investors will demand, which is how a policy choice about templates becomes a macro lever for lowering national financing costs.

Sovereign first, global ready

The fastest way to lose credibility is to appear to chase external agendas, which is why Omani green finance is rooted in national priorities and financial independence that serve domestic objectives first.

The goal is neither to mimic another country’s taxonomy nor to accept conditionality that undermines sovereignty. The goal is to channel capital to projects that strengthen the economic base, build industrial competitiveness and enhance environmental resilience under rules set and enforced at home.

Policy leadership by the Central Bank of Oman, the Capital Market Authority and the Ministry of Finance provides the backbone for this approach, ensuring that all green financing instruments are governed by clear disclosure and accountability standards that protect national interests while welcoming credible partners.

That is how to be globally ready without being globally dependent, by building a system that matches international best practice where it adds value while tailoring thresholds, definitions and reporting to Omani realities and sectoral priorities.

Sovereignty is not a slogan in this context. It is a series of design choices that keep governance, verification and enforcement aligned with national strategy so that the shift to sustainability remains strategic and durable, not transient and reactive. Markets can smell incoherence, and when frameworks wobble, capital retreats, which is why a sovereign-led, transparent and practical architecture is a competitive advantage in a crowded field of issuers and borrowers.

A credible framework requires practical rules that are stable enough for companies and banks to plan around, because nothing kills a pipeline faster than moving goalposts. It also requires capability, which comes from short, targeted training that equips lenders and borrowers to measure and verify impact with confidence, so that KPIs are not just acronyms on a slide but metrics embedded in operations and covenants.

Finally, it requires a visible pipeline of priority projects, from renewables and storage to industrial efficiency, low carbon logistics and green hydrogen, because capital prefers to shop from a shelf where the products are labelled, documented and ready for due diligence. Publish the shelf and refresh it, then watch how swiftly roadshows turn into mandates when investors see a line of creditworthy projects under a consistent policy umbrella.

Sovereign support should be targeted, not distorting, which is why a sustainable finance framework or a credit enhancement facility for early projects can attract private capital without crowding it out, especially in the first wave, where demonstration effects matter more than marginal costs.

The payoff is direct and measurable: lower financing costs, more international investment, stronger Omani enterprises and a stream of sustainable, high-quality jobs that anchor communities and expand the tax base.

Evidence from within Oman already shows the logic working in microcosm, which should embolden a scale-up in the next budget cycle. The shipping example proves that when a borrower presents a credible plan with independently checkable metrics, international lenders will line up to price efficiency gains and share the upside in tighter spreads or better tenors.

The household and SME programmes for rooftop solar and efficiency show that retail finance can be green, practical and popular when lower bills are visible within months, and repayment structures are simple, which builds a culture of demand that supports larger grid and storage investments.

The early momentum in green hydrogen shows how policy focus can draw global developers with both capital and technology, and it underlines the need to connect upstream ambitions to midstream infrastructure and downstream offtake with contracts that allocate risk fairly across the chain.

Stitch these strands together inside a coherent disclosure and assurance regime, and Oman will not have to persuade the market with slogans. It will persuade the market with term sheets and performance reports that speak for themselves.

Playbook for projects

Every firm that wants to tap green finance in Oman can follow a playbook that is short, disciplined and designed to survive sceptical due diligence, because scepticism is the default stance of any serious lender. First, define the project and its environmental logic in plain terms, then state the KPIs that will prove success and the methods for measuring them over time, which stops debates about purpose from consuming meetings that should be about terms and timelines.

Following these, establish a baseline for emissions that covers direct and indirect energy and the most material value chain components, because a baseline makes future claims legible and comparable across reporting periods and market cycles. Third, match the instrument to the reality, using green loans or bonds for defined green uses of proceeds and sustainability-linked structures when the value lies in performance improvement against credible targets rather than in a single pool of assets.

Fourth, pull together feasibility studies, permits and contracts, then condense the numbers into a one-page summary of impact per rial invested that lets decision makers grasp the economics and the environmental case at a glance without flipping through appendices in a marathon session.

Fifth, seek an external review early to build trust and surface any weaknesses before they are handed to a lender, which prevents avoidable delays and demonstrates professionalism to counterparties who value preparedness.

Finally, sit with the bank on day one and ask for its documentation, KPI and reporting expectations, then build your data room to that specification so there are no last-minute scrambles that raise doubts about execution capacity. This sequence is not glamorous, but it wins mandates because it respects how credit committees think and how risk is priced in competitive markets that reward certainty.

For SMEs, the path can be made even clearer through a national starter programme that demystifies the basics and lowers the cost of entry into green finance, which is where leverage per rial spent on training is highest. A programme delivered with chambers and industry groups can teach teams to calculate a basic baseline, choose a financing instrument, draft a short sustainability report and understand assurance, so that first-time borrowers arrive at banks with documents that are good enough to be taken seriously.

Training should be reciprocal, with bankers, credit officers and FDI professionals learning the same technical language so that meetings become exercises in alignment rather than translation, a shift that accelerates closings and reduces leakage in the pipeline.

Regulators can help by standardising templates, sharing anonymised case studies and publicly celebrating early deals that went right, which normalises the process and signals to the market that this is not a fad but a policy-backed shift with institutional energy behind it.

The net effect is compounding velocity, because the second wave of deals is always easier when the first wave created precedents that lawyers and lenders can reference without reinventing every clause.

The road to leadership

The reasons to act now are practical, not rhetorical, because global capital is already reweighting toward clean assets and credible frameworks, and the penalty for hesitation is opportunity lost to neighbours who move faster and offer better documentation.

Oman has the resources, the institutions and the policy direction to compete for that capital at scale, but the deciding factor will be the boring excellence of documents, baselines, KPIs and third-party checks that earn trust across borders and credit cycles.

Even the best solar resource does not finance itself. It needs a borrower who can prove savings, a regulator who can guarantee standards and a lender who can price risk with confidence, which is why the blocking and tackling described above will matter more than slogans on conference stages.

The good news is that the building blocks exist, from local banks assembling green finance capabilities to authorities enabling green and sustainability bonds and sukuk and early projects showing that money follows numbers when the numbers are honest.

The next chapter will be written by teams that execute the playbook and by policymakers who protect national interests while opening the door to credible partners under rules that elevate trust over hype, process over improvisation and performance over promises. If that discipline holds, Oman can turn vision into velocity and make green finance not just a headline, but a competitive advantage that compounds across a generation.

The post Oman turns vision into green power appeared first on International Finance.

All Green Banks have the mission to address climate change, though many also have additional objectives, such as improving resiliency or addressing underserved markets.

With the mission of combating the impacts of climate change becoming the new normal in the 21st-century socio-economic setup, the financial sector has become a pivotal force in driving sustainability. Banks, too, are aligning their lending, investment strategies, and product offerings with environmental, social, and governance (ESG) objectives.

While ESG has become integral to achieving global net-zero carbon emissions, green banking, on the other hand, has transformed itself from a niche concept to a central strategy for financial institutions aiming to support the green transition and safeguard the planet.

The new normal: Challenges ahead

Becoming “Green Banks” has become the policy imperative for 21st-century financial institutions. Take HSBC, for example, which has made a bold commitment to align its portfolio with the Paris Agreement’s goal of net-zero financed emissions by 2050. The London-headquartered bank in 2024 made significant strides on the ESG front.

Prominent among them was the collaboration with Google Cloud, as part of which new initiatives were launched to support the burgeoning climate tech sector. This partnership, particularly through the Google Cloud Ready-Sustainability (GCRS) programme, will offer tailored financial products and services in the United States and the United Kingdom, designed to propel the growth of innovative startups.

In 2024, HSBC also partnered with Dun & Bradstreet (D&B), a global provider of business decision data and analytics, to support Hong Kong businesses in enhancing their resilience and competitive edge through environmental, social, and governance (ESG) reporting.

Last but not least, HSBC’s Hong Kong division partnered with Cathay Pacific and biofuels platform EcoCeres started a new initiative aimed at helping to decarbonise air travel by supporting the use of sustainable aviation fuel (SAF) in the Chinese administrative region.

HSBC will now purchase 3,400 tonnes of SAF produced by EcoCeres for use by Cathay Pacific on flights departing from Hong Kong International Airport. The transaction marks HSBC’s largest SAF purchase to date, and the initiative will support Cathay Pacific’s goal to scale the use of SAF to 10% of its fuel consumption by 2030.

In 2024, German giant Deutsche Bank announced a series of finance and due diligence commitments aimed at strengthening its ocean protection policies, including the implementation of a freeze on direct financing of deep-sea mining projects.

The new announcement forms were part of Deutsche Bank’s commitment to the #BackBlue initiative. Backed by the United Nations (UN) and led by the blue economy-focused organisation the Ocean Risk and Resilience Action Alliance (ORRAA), the Blue Finance Commitment (#BackBlue) initiative was launched in 2021 to incorporate ocean considerations in finance and insurance decisions.

In Asia, too, ESG is rapidly capturing the attention of financial institutions and governments. Across the continent, a number of new regulations were introduced recently, increasing scrutiny of corporate operations. China announced in 2024 that listed companies would be required to publish sustainability reports by 2026. A similar rule for reporting is already in place for companies on the Hong Kong Stock Exchange.

Singapore, too, took steps with the creation of the Green Finance Industry Taskforce (GFIT). The GFIT is divided into workstreams, with focuses on developing a taxonomy with clear sustainability objectives, improving environmental risk management, and supporting green financing solutions.

In response, banks operating in Asia are now becoming innovative in their way of supporting their clients in their environmental, social, and governance goals, tying the products and services they offer to environmental targets. Standard Chartered launched an ESG-linked cash account for their corporate banking clients, tying the interest rates and fee pricing to the company’s performance.

According to Elizabeth Girling, head of sustainable finance products and frameworks at Standard Chartered, the accounts will incentivise clients at the organisational level to work sustainability into their treasury management arrangements.

As companies began to focus on their Scope 3 emissions (which track the indirect carbon emissions throughout the length of a company’s value chain), banks are developing products to support their decarbonisation goals.

Uzayr Jeenah, partner at McKinsey, noted that DBS has supported fashion retailer H&M in developing financing tools to assist with the decarbonisation of their supply chains. H&M’s suppliers are now able to access financing via DBS and technical support from sustainability consultant Guidehouse to reduce their climate impact through initiatives like upgrades to factories.

Jeenah termed these initiatives, which are focused on value creation, as ones that go beyond the trend of “green lending for the sake of green lending” and are driven by the corporate customer base, which has become increasingly demanding evidence of their net-zero progress.

The Banker reported that the “banks are being further assisted in gaining greater oversight of the companies across a value chain by the integration of data-rich messaging systems, which increase transparency and accountability.”

Jeenah also pointed to the move from MT standards to ISO 20022 standards used in transaction messaging, saying it will “unlock use cases,” such as decarbonising the supply chain. Through these messages, greater detail is given on the recipient of funds, allowing for further traceability along a supply chain and across borders.

ESG expands in MENA too

As per June 2024 research titled “Sustainability Reporting for Banks: The Climb Starts Here,” The London Institute of Banking & Finance (LIBF) noted that sustainability is becoming a key focus area in the financial sector of the MENA (Middle East and North Africa) region, driven by regulatory frameworks, market demand, and technological advancements.

Initiatives like the “Unified ESG Metrics for GCC Listed Companies” and national sustainability agendas in the UAE and Saudi Arabia are setting standards for transparency and comparability.

“Consumer and investor pressure for sustainable financial products is pushing banks to integrate ESG principles into their strategies. The rise of green bonds, sustainable loans, and FinTech solutions is further advancing the sector’s commitment to environmentally and socially beneficial projects.

Moreover, partnerships with educational institutions like the London Institute of Banking & Finance (LIBF) are enhancing the knowledge and capacity of financial professionals in ESG practices,” the study noted.

Financial institutions are strengthening corporate governance and ethical leadership to support sustainability goals. Leadership commitment and enhanced governance structures have become crucial for driving the sustainability agenda. Regional partnerships and the adoption of global benchmarks are promoting best practices and improving local sustainability efforts.

Additionally, there is a growing emphasis on comprehensive and transparent ESG reporting, financial inclusion, and social impact investments. By diversifying investment portfolios towards sustainable assets and regularly assessing their environmental and social impacts, the financial sector in MENA aims to achieve long-term risk management and positive social outcomes.

ESG has become even more important in MENA, considering it is a region vulnerable to environmental challenges. According to a report by the World Economic Forum, temperatures here rise twice as fast as the global average.

This harsh reality calls for an urgent pivot to sustainable practices, which extend well into the finance space. In early 2023, PwC identified green financing as a key economic theme to watch. Green finance focuses on raising funds to tackle environmental problems, such as reducing emissions, climate change, and restoring biodiversity. It is part of sustainable finance, a broader approach that involves considering ESG factors in investment decisions.

In the MENA model of green finance, we have green bonds, which, issued by governments or private companies, are a kind of loan created to fund projects that help the environment. Green sukuk is similar to a green bond, while remaining compliant with Islamic law. According to OECD (The Organisation for Economic Co-operation and Development) data from 2020, the region has consistently received between $2 and $3 billion each year in climate finance since 2012.

“While the inflow of climate finance has been steady, it falls short of meeting the region’s demands, prompting several MENA countries to innovate and expand their green finance mechanisms. After all, green finance offers vital opportunities for the region, especially those belonging to the Gulf Cooperation Council (GCC). An analysis by Strategy& revealed that by 2030, green investments in six major GCC industries could significantly boost the economy. These investments could contribute up to $2 trillion to the cumulative GDP, generate over 1 million jobs, and attract foreign direct investment (FDI),” reported The Middle East Economy.

Closing the financial gap in MENA’s transition toward a more sustainable economy, governments in this part of the world have begun enacting laws and regulations driven by sustainability goals. Take the UAE, for example, where the Securities and Commodities Authority mandates that public joint-stock companies on the Abu Dhabi Exchange or Dubai Financial Markets issue an annual sustainability report. Such an initiative aims to boost investor confidence and ensure companies disclose and manage important ESG factors effectively.

The year 2023 marked a significant surge in green social, sustainable, and sustainability-linked bonds (GSSB) issuances in the MENA region. Total sales reached a new high of $24 billion, equivalent to a 155% increase from the previous year. Leading the way were the UAE and Saudi Arabia. Together, these two powerhouses accounted for 77% of the total issuances in MENA. Egypt also made a mark with the Green Panda Bond, the first from the region to be issued in China. It raised RMB 3.5 billion ($479 million) to fund public transit projects and received a partial guarantee from the Asian Infrastructure Investment Bank (AIIB).

The same year also turned out to be an important one for green sukuk in the region, as Islamic issuances made up more than a quarter of the total regional output for the first time. MENA also dominated the global market in green sukuk, achieving sales of around $6.5 billion.

In 2024, MENA further solidified its position in the global green finance market. While Oman introduced a sustainable finance framework, this allowed for the issuance of various financial instruments, including green bonds and sukuk, to fund renewable energy projects.

The Saudi Ministry of Finance also unveiled its Green Financing Framework, a detailed plan supporting projects across clean transportation, renewable energy, and climate change adaptation. Fitch Ratings projected that ESG sukuk would exceed $50 billion globally within two years.

The end of Q1 2024 marked a significant milestone, with ESG sukuk reaching $40 billion, demonstrating a year-on-year growth of 60.3%. Saudi Arabia and the UAE further consolidated their positions at the forefront of this growth, holding the largest shares of Fitch-rated ESG sukuk — 45% and 33%, respectively.

The rise of green financial products

Businesses are now realising that integrating sustainability into core operations is not just about fulfilling social responsibility, but is also critical to long-term business viability. However, these commitments come with significant risks, particularly for banks with substantial exposure to high-emission sectors like energy and mining.

“Reducing exposure to carbon-intensive industries can weigh on short-term profitability, but financing the shift to a low-carbon economy presents enormous long-term opportunities,” said Peter Panayi, Head of Global Go-To-Market at BuildingMinds, while explaining, “Banks are finding that while reducing exposure to carbon-intensive sectors may affect short-term profits, financing green transitions opens new growth avenues and positions them as leaders in the future of green finance.”

For banks, the green transition requires a fundamental rethinking of traditional business models, where profitability and sustainability are no longer mutually exclusive. Instead, they are interdependent. As demand grows for sustainable products and investments, financial institutions that successfully integrate ESG factors into their business strategies will outperform their competitors, both in terms of market share and profitability.

This shift, however, comes with its challenges. Banks must address risks associated with greenwashing and navigate complex regulatory frameworks, which pose significant obstacles in balancing profitability with sustainability commitments. To tackle this multifaceted landscape, financial institutions are creating new financial products, utilising innovative technologies, and investing in transparency and data verification to achieve their financial and sustainability objectives.

When it comes to developing and deploying green financial products, banks are employing strategies like green bonds, sustainability-linked loans (SLLs), and ESG-focused instruments, which are at the forefront of this financial innovation. These products enable banks to fund projects that support sustainability objectives while maintaining strong financial performance.

The global green bond market, for example, has seen exponential growth in recent years, reaching hundreds of billions of dollars in annual issuances. Richard Bartlett, co-founder and CEO of GreenHearth, a fintech focused on financing renewable energy projects, shared his thoughts about the increasing importance of these products.

He said, “Sustainability-linked loans and green bonds are essential in meeting the growing demand for sustainable investments. They offer performance-based financing that encourages companies to meet their ESG targets while maintaining financial viability.”

However, despite green financial products holding some potential, challenges remain. Banks must manage the reputational risks associated with accusations of greenwashing (companies falsely claiming to meet ESG standards) and navigate an evolving regulatory environment. Frameworks like the “EU Green Taxonomy” and the UK’s “Sustainability Disclosure Requirements” (SDR) demand that banks provide detailed ESG data and ensure that their products align with sustainable finance principles.

Banks now require robust systems for collecting and verifying ESG data. Without transparent and measurable outcomes, these financial institutions also risk losing credibility and investor confidence.

Rajul Sood, Managing Director and Head of Banking at Acuity Knowledge Partners, highlighted the importance of data in this process, as he said, “Banks monitor green loans through impact reports and key metrics, such as renewable energy projects financed, energy efficiency improvements, and carbon emissions reductions. This data is essential for ensuring that investments are both financially sound and aligned with sustainability goals.”

The issue of greenwashing has become a significant concern for banks and their stakeholders. Greenwashing is a phenomenon where companies/financial institutions exaggerate or falsely claim their environmental credentials to attract capital. Regulatory bodies are tightening the rules around sustainable finance to ensure transparency and prevent misleading claims. The EU’s Green Taxonomy, for instance, now provides a clear framework for what constitutes a ‘green’ investment, making it more difficult for institutions to claim green credentials without substantiating them.

In the United Kingdom, the Sustainability Disclosure Requirements (SDR) aim to increase transparency around ESG reporting. However, Bartlett notes that the UK lags behind the EU in implementing comprehensive regulatory frameworks.

Driving sustainability with innovation

Fintech solutions like digital twin software are enabling banks to monitor the financial and environmental performance of green projects in real time, apart from helping these businesses provide stakeholders with clear, measurable outcomes, enhancing both transparency and accountability. The same technology is also helping banks streamline compliance with regulatory frameworks.

Automating the reporting process allows banks to efficiently meet regulatory requirements, thereby reducing the risk of non-compliance and the penalties that may follow. The rapid growth of sustainable finance offers numerous opportunities for banks, especially in creating innovative financial products. Among the most promising options for banks aiming to support the green transition while remaining profitable are sustainability-linked loans and green bonds.

By availing of sustainability-linked loans, companies are receiving financial incentives to meet specific ESG targets, such as reducing carbon emissions or improving energy efficiency. If the company meets these targets, it benefits from lower interest rates, making the loan more affordable. This performance-based financing model has become increasingly popular as companies strive to align their operations with global sustainability goals.

Green bonds have become another powerful tool, allowing banks to raise capital for projects that have a positive environmental impact, such as renewable energy or sustainable infrastructure. The success of these products demonstrates the strong demand for ESG-aligned investments, delivering financial returns and contributing to a more sustainable future.

Stakeholders are increasingly demanding that banks not only talk about sustainability but also demonstrate genuine commitments to ESG principles through their actions.

Beyorch CEO Dre Villeroy, a wealth management firm specialising in ESG investments, emphasised the importance of authenticity in green finance. He said, “You can talk about improving society or the environment, but unless you make a real difference, it’s just talk.”

Villeroy further highlighted that at Beyorch, investments are evaluated not only on their financial returns but also on their impact on society and the environment. This focus on authenticity shows that there is a broader shift in the financial industry, where ESG investments are increasingly judged by their real-world impact, rather than just their token financial performance. Banks that balance profitability with meaningful sustainability contributions will be well-positioned to thrive in the green finance landscape.

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The IPCC report set extremely aggressive goals to meet 1.5°C of global warming, including a reduction of global net anthropogenic CO2 emissions by roughly 45% from 2010 levels by 2030 and a net zero emission level by 2050.

It is undeniable that social and corporate changes as well as emissions reductions in all sectors are necessary to keep global warming to 1.5°C. The National Climate Assessment arrived at similar conclusions and recommended steps to lower risks through emissions mitigation and adaptation, albeit with a more constrained scope because it concentrated its findings on the United States. Despite the negative effects of climate change and global warming, these findings demonstrate that much work remains to be done.

Experts say, an enormous amount of money must be invested in order to accomplish such a structural transformation.

According to the IPCC report, $2.4 trillion in clean energy will be required annually through 2035, and $1.6–$3.8 trillion in supply-side energy system investments will be required annually through 2050. This amounts to $51.2 and $122 trillion in energy-related investments alone.

The financial sector, which is the foundation of the actual economy, is anticipated to play a crucial role in supplying the required financial resources in light of the substantial investment needs. Also, in order to provide credit to households and individuals and to meet the financial needs of the private sector, the banking industry plays a crucial role.

Additionally, the banking industry is essential to a nation’s efforts to adapt to climate change and strengthen its financial defences against related hazards. By redistributing funding to sectors that are sensitive to climate change, banks can lessen the risks related to sustainability and climate change, lessen their effects, help businesses adapt to the changing environment, and promote recovery.

The financial system is being impacted by climate change due to its extensive effects on all industries and regions, as well as the high degree of certainty that risks will materialise and have unavoidable repercussions if action is not taken now. Nonetheless, the current asset valuation does not fully evaluate and account for the risks associated with climate change. In order to finance the shift to a green economy, banks must unlock private investment, balance supply and demand while taking into account all potential risks, and assess projects from both an economic and environmental standpoint. The majority of banks still have very small green portfolios, despite the fact that some have shown leadership in financing climate or green projects.

According to estimates from the International Finance Corporation (IFC), in 2016 the total amount of green loans and credits extended by developing country banks to the private sector was roughly $1.5 trillion, or roughly 7% of all claims made by emerging market banks against the private sector. The failure of banks to incorporate environmental and climate change risks into their risk management systems and strategies, as well as the absence of the required regulatory and supervisory framework, led to this result.

Additionally, obstacles at the sectoral and institutional levels make it frequently difficult to meet the necessary investment under the current financial framework. As a result of the absence of a regulatory and supervisory framework, more central banks and regulators globally are realising their responsibility to address climate change and environmental risks that the banking and financial industry faces and are taking appropriate action.

For instance, in order to support the shift toward a sustainable economy and to aid in the analysis and management of climate and environmental risks within the financial sector, a consortium of central banks and supervisors established the Networking for Greening the Financial System (NGFS) in 2017. Simultaneously, an increasing number of banks, particularly private sector commercial banks, have begun to go green with their operations. This has involved incorporating risks related to the environment and climate change into their risk management systems and strategies, as well as introducing green financial products to broaden their business reach.

Overview of green banking

The definition of ‘green banking’ is not agreed upon by all parties, and it differs greatly between nations. Some organisations and researchers, however, made an effort to define it differently. Green banking is an umbrella term for policies and procedures that make banks sustainable in terms of the economy, the environment, and society, according to the Indian Institute for Development and Research in Banking Technology (IDRBT), which was founded by the Reserve Bank of India.

Green banking combines social and environmental responsibility with first-rate banking services; it is comparable to ethical banking, which is centred on environmental protection. Green banking, as defined by the State Bank of Pakistan, is the promotion of eco-friendly practices that help banks and customers lower their carbon footprints.

Since green banking addresses banks’ social responsibility for environmental protection, it can also be referred to as social or responsible banking. This shows how social and environmental issues frequently intersect. In general, social banking is defined as using banking to address some of the most important issues of the day and to try and improve people’s lives, the environment, and culture. In a similar vein, responsible banking involves banks making a firm commitment to sustainable development and incorporating corporate social responsibility into all aspects of their business operations.

Lastly, green banking can be thought of as a subset of sustainable banking, which focuses more on social and environmental aspects. A network of independent banks and banking cooperatives, the Global Alliance for Banking on Values (GABV) has as its common goal the use of finance to promote sustainable social, economic, and environmental development.

GABV has supported sustainable banking principles, which include a triple-bottom-line approach (focusing on social, environmental, and financial aspects) at the core of the business model, a community-based foundation, and open and inclusive governance. There are a lot of definitional and conceptual overlaps, which can be somewhat confusing. To make the scope and definitions a little clearer, UNEP provided a good comparison of respective definitions of green vs. sustainable vs. socio-environmental. Green finance includes climate and other environmental finance but leaves out social and economic aspects; in contrast, sustainable finance is the most inclusive concept, according to UNEP, and includes social, environmental, and economic aspects.

The IPCC correctly stated in 2001 that there is insufficient scientific data to determine how climate change will impact the banking industry. Despite the lack of conclusive scientific data, regulators, central banks, and academic institutions have been examining the financial risk and stability implications of climate change.

The Bank of England’s Prudential Regulation Authority (PRA) has identified physical and transitional risk factors as the two main financial risk factors linked to climate change. First-order risks resulting from climate and weather-related events, including heatwaves, droughts, floods, and sea level rise, put human and natural systems at risk. Experts say, physical risks can lead to higher credit risks and financial losses by impairing asset values.

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These funds will also help manage new equity and fixed income, which will be focused on climate change and the environment. The announcement was made by managing director Ravi Menon while launching the central bank’s first sustainability report.

Menon said in a statement, “The GIP will help to enhance the climate resilience of the official foreign reserves, attract sustainability-focused asset managers to Singapore and catalyse funding towards environmentally sustainable projects in Asia and beyond.”

The five appointed asset managers will establish their regional sustainability hubs in the country itself and will also launch new thematic funds focused on environmental, social, and corporate governance (ESG). They will also focus on building green finance with the help of in-house and external training programmes in order to generate in-depth research on ESG and green financial technology effort.

MAS will also consult with the industry sometime later this year in order to discuss the compulsory climate-related disclosures by the financial bodies while focusing on transitioning these expectations into legally binding requirements, according to the global standards.

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Daniel Howlett, HSBC’s regional head of Commercial Banking for the Middle East, North Africa and Turkey (MENAT) told the media, “This transaction demonstrates the commercial viability of green finance in the Middle East for issuers beyond sovereigns, financial institutions and the largest multinational corporations. Sustainable growth is more important than ever before for businesses that want to build back better from the Covid-19 pandemic and HSBC is proud to be leading the development of the green finance market in the Middle East.”

Last year, it was reported that HSBC Singapore was planning to drive bespoke green financing with a new green loan for small and medium-sized businesses in the city-state. The bank’s green loan is in line with internationally recognised green standards — and will accept applications based on industry certifications.

HSBC has supported sustainable finance through various bond launches in Hong Kong, Ireland and Mexico. In June 2018, the bank on its part decided to ease the transition to a low-carbon economy.

It was reported that HSBC  accepted the green loan applications from businesses holding Singapore Green Labelling Scheme (SGLS) and eco-certification schemes, Green & Gracious Award and Green Mark Scheme, product and services certification schemes and Renewable Energy Certification.

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The coronavirus pandemic is not the only factor that has pushed governments all around the world to make advancements in green agendas and continue their prior efforts in such developments. It was on July 2, 2019, when the UK government published a report known as the Green Finance Strategy, with a subtitle Transforming Finance for a Greener Future to outline how the financial sector can drive progress in relation to climate change and help the UK achieve its net-zero emissions target. 

The UK is an outstanding example of green finance

Many governments including the UK have included green recovery measures in their response packages through grants, loans and tax reliefs. These are aimed at developing green transport, circular economy and clean energy research and development. The UK government has also unveiled the Green Homes Grant, which is a £20 billion scheme allowing homeowners and landlords to access funding to upgrade the energy efficiency of their homes. The country is leading the change to build a sustainable financial future. The government is actively involved in encouraging more green finance in the country and internationally, through various measures—such as green financing, addressing market barriers, building capability and developing innovative approaches to strengthen the financial landscape to tackle climate change.

The City of London Corporation and the government are keen to the country’s capabilities on this front and transform it into a global hub for green finance. Now significant upgrades in technology, policies and business models, in addition to the increasing public awareness in the country’s transition to a green growth pathway. Besides the UK, other countries like China have also recorded significant reductions in carbon intensity last year. 

Flows of private finance into sustainable projects

The country already has a proud record in tackling climate change and transforming its financial landscape is imperative to its vision. Its Green Finance Strategy largely supports the economy policy for sustained growth and the delivery of modern industrial strategy. But it needs to be combined with specific actions to speed up the flows of private finance into key environmental sectors at home and overseas. 

In the last decade, there has been more than £92 billion invested in the country’s clean energy, with specific interventions to speed up the process. For example, the Green Investment Bank has been working along with more than 100 private sector and third-party investment partners. In fact, the bank alone had committed to £3.4 billion of its own capital to 100 projects. These projects were estimated to have a total value of more than £12 billion.

New technologies for financial viability 

In parallel to these attitudes and policy shifts, technological advances continue to accelerate the country’s efforts in green finance. This not only relates to the emergence of new technologies, but it also means scalability and financial viability of recent innovations to make them more accessible to the average consumer. With the rise in the penetration of electric and hybrid vehicles, or the wide scale adoption of smart home technology related to entertainment, social interaction, convenience or security, there is no reason to believe that the green technology trajectory will be any different. 

We ultimately believe that this shift in mindset from awareness and understanding to action coupled with the current macro-conditions mean that a green future is not only desirable but is inevitable. I founded Tandem with an intent of building ‘The Good Bank’ that puts customers’ needs first and takes the stress out of money management.

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It is true that both organisations have demonstrated sustainability commitment over the last few years, however. Their financing roles in fossil fuel companies have been quite prominent. In light of the current circumstances, Barclays has pledged net-zero climate policy by 2050 including operations and investments and HSBC is committed to provide $100 billion in sustainable financing by 2025.

In fact, the Bank of England thinks climate change is a liability because it could impact the UK economy in so many ways. However, developing strategic responses to the anticipated financial risks that stem from climate change can help British banks and financial services organisations to maintain monetary and financial stability in the coming years.

Last year it was reported that the Bank of England might force British banks and insurers to discuss how vulnerable they are to the climate change crisis and how they might respond to the effects of rise in temperature up to 4 degree celsius under its first climate stress test.

British banks including HSBC, Barclays, Standard Chartered, Royal Bank of Scotland, Santander UK, Lloyds and Nationwide will be subject to the test which is expected to be released in 2021.

In theory, the test will take into account three possible scenarios: early policy action, late policy action and failed attempts to address climate emergency resulting in rise in temperature. The first scenario is focused on transitioning to a carbon-neutral economy while the second scenario is where the country might achieve global climate targets but the transition will be delayed by 10 years. The final scenario will arise when stakeholders do not change their behaviour and government policies fail to address the climate change issue.

The risk of climate change is already affecting the financial companies in the country. It appears that British banks are extremely vulnerable on the back of having established their presence in certain regions like Southeast Asia which is highly exposed to climate change. According to a joint study published by University of California, Berkeley and Stanford University, unmitigated global warming could result in a loss of 23 percent in per capita earning globally by the end of the century.

If there is a bright side to all of this, it is that the fossil fuel industry is slowly deteriorating. This is not only because of the recent revolts against fossil fuel financiers which has now pronounced the effects of climate change, but fossil fuel companies are also sensing that investors want to put their money into renewables.

The situation looks much the same around the world. So it is not too late to start asking what the UK financial industry can do to fight against the overwhelming climate change. And one answer states the obvious that all industry stakeholders should become more responsible in their acts. It turns out that the UK is actively working to further cement its position as a global climate leader. Last year, the UK government announced the Green Finance Strategy—a landmark move aimed to increase investments in sustainable projects and infrastructure. In a nutshell, the Green Finance Strategy is an addition to the country’s efforts to tackle climate change. That said, it is also the first country in the G7 to pass net zero emissions law last year.

Against this background, Ian Bradbury, CTO for financial services at Fujitsu UK, in a interview with International Finance, further explains how the UK is beginning to promote a culture of green finance—in addition to the short and long-term implications of climate change for banks and financial services organisations in the country.

Q. How are British banks and financial services responding to purpose-led financing in the country?
There is a growing shift across the financial services industry towards purpose-led business. Financial services organisations need to build a brand that goes beyond simply providing and protecting assets. This is especially important in a digital world where there is more choice, greater competition and less customer lock-in. The organisations that will thrive in this new environment are those that recognise what is important and valuable to their collective customers and society as a whole; perhaps even strengthening those opinions over time through clear statements and ‘doing the right thing’. Right now, climate change is a high priority for many customers, with its visible impacts now occurring and deniability becoming less plausible.”

Q. The unprecedented rise in fear about climate change is slowly marking a shift in financing. What is the approach taken by the UK financial industry to fight this issue?
As financial services businesses begin to move toward being more purpose-led, helping to combat climate change is becoming a major opportunity to improve brand value and generate customer loyalty. Sustainable and ethical investment funds have been around for many years as niche portfolio holdings but they are now seen as mainstream funds, generating high returns and good investor interest. The way that businesses operate is also under more scrutiny than ever, with sustainability metrics beginning to be viewed as a critical measure of business performance and future success for all stakeholders.

Q. What is the role played by climate activist groups in promoting a culture of financing in renewable portfolios?
Climate activist groups are no longer seen as ‘fringe’—they increasingly represent mainstream public opinion, with more visibility of the potential impact of climate change and, subsequently, a better idea about the need for change in society. These groups are also benefiting from new technologies that allow them to quickly develop ideas, grow in size and take visible action, which is having a far greater impact on societal views than ever before. ‘Naming and shaming’ about poor attitudes to climate change is just part of this—in the digital age financial services organisations should be more aware of how their businesses can be impacted by changing public perceptions.

Q. British banks like RBS are increasing restrictions in line with climate action policies. How should the UK government and financial regulators step up actions to further support banks’ efforts?
Many national governments are also setting an agenda that is driving business change. For example, the UK government recently published its ambitions for Decarbonising Transport: Setting the Challenge. In the opening, the following intent is outlined: ‘public transport and active travel will be the natural first choice for our daily activities. We will use our cars less and be able to rely on a convenient, cost-effective and coherent public transport network.’ This scheme provides a huge opportunity for financial services organisations to invest, partner, visibly champion and support the government in its fight against climate change.

Q. Should British banks treat risks rising from climate change as a financial risk, and not just a reputational risk? Why?
Climate change poses a significant financial risk to both the short and long term success of financial services businesses. This is already being felt by the insurance industry, as the impact of flooding and extreme weather events drive up the cost of claims. The long-term underlying financial stability of economies is also already recognised as a major future risk. Climate change potentially affects population migration, security of water and food and the geographical location of valuable assets (as we move away from a hydrocarbon driven economy). All of these challenges have led to economic instability in the past, and in some cases major wars. Climate change must not be underestimated as a major global economic risk, and the financial services industry needs to plan for it.

Q. Why is adoption of the Task Force on Climate-related Financial Disclosures initiative important for banks globally?
With all of the reasons above there is perhaps enough stimulus for financial services businesses to act on both the challenge and the opportunity of climate change without the need for the involvement of central banks and regulators. Having said that, central banks and regulators do need to act on major policies and direction set by the government, and in the interests of the populations which they support and represent. For these reasons it is appropriate for both central banks and regulators to be seen to be encouraging this change.

Q. How do you foresee British banks and financial regulators actively driving sustainability banking over the next five years?
The way banks approach climate change over the coming months and years may be influenced by the short and long term uncertainties around Covid-19. From a positive perspective we can already see that we can be more ambitious with our drive to reduce climate change. Home working for many has proved to work better than expected, and we have moved quickly to enable it; in turn, it has significantly removed the need for much of our hydrocarbon driven transport. In the long-term the outlook is more challenging. Experts are predicting a recession in many economies, with the loss of many traditional businesses and jobs. With the right leadership, the damage could be mitigated and they could see an opportunity to reshape the economy much faster to be zero carbon. But the climate change imperative could be overtaken by the quick-fix stimulation to the economy that hydrocarbons have been able to generate in the past.

Bio
Ian has been with Fujitsu for over 15 years, having worked his way up from Solution Design Manager to the CTO for financial services for the company in the UK and Ireland. Working with some of the UK’s largest banks, he has helped to develop the digital systems for leading financial services institutions in the country.

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Gaw Capital Partners is a private equity firm in Hong Kong. The syndicated loan will finance both companies’ $1.575 billion joint acquisition of Duo Tower and Duo Galleria from a national joint venture between Singapore and Malaysia (M+S), the Business Times reported. 

Duo Tower has 570,000 sq ft of prime Grade A commercial space, and Duo Galleria has 56,000 sq ft of retail space. They are a part of Singapore’s  Ophir-Rochor precinct.

Lim Lay Wah, UOB’s global head of financial institutions group, told the Business Times, “The real estate sector has been leading the charge in the demand for green financing, with more property owners, managers and financial sponsors upholding sustainability standards as part of their climate action efforts.”

Singapore is a fast-developing hub for green and sustainable loan issuances. It has more than $6 billion of loan issuances between 2018 and October 2019, according to Patrick Lee, chief executive of Standard Chartered Singapore. 

Previously, UOB, DBS and Standard Chartered were the green loan advisors, mandated lead arrangers, underwriters and bookrunners for Gaw and Allianz joint venture Ophir-Rochor Commercial.

Earlier this month, Allianz expanded its logistics presence in France with the acquisition of a €200 million core assets from AG Real Estate. The core assets are in Réau, Pont-d’Ain, Chaponnay and Onnaing, according to the local media report. 

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It is the most recent country to structure a bond which contributes to development of environmental-friendly projects, according to Financial Times

Felipe Gordillo, a senior analyst at BNP Paribas Asset Management, said, “It is a very interesting green bond as they are using their existing infrastructure for Islamic finance, and the areas in which they are going to be investing—climate mitigation and climate resilience—are interesting.”

An independent science-based Climate Action Tracker (CAT) assessment report  predicts Indonesia’s emissions to rise by 2030. The report said Indonesia’s Nationally Determined Contribution (NDC) is ‘insufficient’ with low levels of commitment. Referring to the Paris Agreement temperature goal, its emissions should balance out if not decline.  

By 2026, the Indonesian government is focused to increase the use of renewables to more than 20%. However, “Indonesia’s climate policy is a contradiction—an apparent mismatch between a plan to have renewables play a stronger role in its energy mix, while simultaneously locking in a large and growing role for coal, which will lead to continually rising emissions,” the report reads. The country’s current use of renewables is less than three percent.

Last month Poland was listed as the first country to sell two green bonds. The country heavily relies on coal as 80% of its power generation is from this fossil fuel.

Green finance has grown significantly with a record of US$155bn in 2017, observed Moody’s. This year, global green bond issuance is expected to grow 60% to reach US$250bn  record. Moody’s analyst Matthew Kuchtyak said other countries are driven to implement green finance, but it is India and China that will take the lead in this market. 

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The report, titled Catalyzing Green Finance: A Concept for Leveraging Blended Finance for Green Development, highlights the constraints for developing a large pipeline of bankable green infrastructure projects and calls for an integrated approach to transforming country financial systems.

The report outlines the concept of a Green Finance Catalyzing Facility (GFCF), which would serve as a model for countries to create their own financing vehicles and implementing mechanisms. This would leverage public funds and policies to catalyze a blend of financing from private sources for increasing green infrastructure investments. Mobilizing additional funds from the capital markets is a major objective of these vehicles. Public funds would be used as risk mitigators to create bankable projects and crowd in private funds, technology, and efficiency improvements.

GFCF’s nature as a facility, rather than a fund, would enable a holistic approach to green finance, through raising private funds not just for projects but also at the portfolio level, providing project development and structuring support, and establishing a financing mechanism which links financial incentives with green targets, leveraging, credit ratings, and capital markets access.

“A paradigm shift in infrastructure planning and design is an imperative for dynamically changing Asia. The choice that Asia makes in bridging infrastructure gaps will have profound implications for its people and the planet,” said Bambang Susantono, ADB Vice-President for Knowledge Management and Sustainable Development. “The publication is timely in providing practical institutional solutions for enhancing countries’ financial systems to help them chart a greener, more sustainable future.”

The report directly responds to ADB member countries’ needs to address the persisting shortfalls in infrastructure investments, estimated at over $1.7 trillion annually until 2030, taking into account climate change mitigation and adaptation costs. The proposed national green financing vehicles would help meet these needs while ensuring the best use and conservation of scarce natural resources.

Green finance covers a much bigger scope than climate finance and includes all financing instruments and investment decisions that are geared towards low-carbon, sustainable, and inclusive development. The private sector, regarded as a critical contributor to meeting the region’s development financing needs, would have to contribute over 50% of required green investments in many countries. In the People’s Republic of China (PRC), this contribution is estimated at 90%.

The report is targeted at government and private sector professionals and informs country-specific structures that can assist in strengthening green growth initiatives, while allowing countries to reduce their national-level fiscal burden.

The catalyzing green finance concept emerged late last year during ADB meetings with key government officials, various G20 green finance task force members including from the PRC and the United Nations Environment Programme, and experts from the private sector. ADB worked with several of these experts to develop the report.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB is celebrating 50 years of development partnership in the region. It is owned by 67 members—48 from the region. In 2016, ADB assistance totaled $31.7 billion, including $14 billion in cofinancing.

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