Middle East economies are embracing green trade financing and investment options as they look to recover from the global pandemic. The new funding streams will help to boost non-hydrocarbon revenues and help rebuild the economy in a sustainable way.
The new values are creating a new mode of business as the region navigates the largest transformation of our time. HSBC is at the forefront and is supporting businesses, entrepreneurs and communities that champion values and actions in the pursuit of sustainable prosperity as we build back better.
Green trade financing is emerging as eco-friendly instrument, which is helping lay the groundwork for the development of sustainable products and services while driving corporates ESG agendas forward.,
With green trade and financing sweeping across the world, Middle East governments and corporations are nimbly positioning themselves for the big switch. They are also aware that investors, customers, business partners and other stakeholders are expecting on-the-ground changes.
HSBC has worked to design to support the working capital requirement of our clients that fulfill the Green Loan Principles and measurably contribute towards an ESG agenda.
The GLP model closely follows the Green Bond Principles that promotes integrity in the Green Bond market and has the backing of major financial institutions such as HSBC.
The GLP has four key tenets that companies must adhere to ensure that loan is used for sustainable purposes. 1 The four pillars are:
- Use of proceeds
- Process for project evaluation and its selection
- Management of proceeds
- Visibility over information on the project
Indeed, HSBC’s own green propositions are built around the GLP and other market standard principals to ensure that the business classified as green meets these market benchmarks as a minimum requirement.
Where market benchmarks are unavailable, HSBC has constructed bespoke principals built on GLP for consistency and the broader UN Sustainability Development Goals, a globally agreed framework to help protect the planet, end poverty, and ensure peace and prosperity.
Milestone Green Trade Transaction
This year, HSBC successfully concluded the first sustainable trade finance facility in the Middle East, North Africa and Turkey (MENAT) with Dubai-based Lamprell Plc, a major engineering and contracting services entity with a 40-year experience of building renewable, and oil and gas energy projects across the world.
HSBC was the sole arranger for the risk mitigating trade finance facility, including the first green guarantee facility in the MENA region, and the first sustainable documentary credit facility executed by HSBC globally. HSBC provided Lamprell Energy USD$ 48 million facilities use to finance the Seagreen Offshore Wind Farm project off the coast of Scotland. Click here to explore the case study.
Green trade financing is emerging as a truly global phenomenon with some of the world’s largest corporations finding innovative ways to develop sustainable sources of supply.
In 2019, we joined forces with Walmart Inc.2 and The Sustainability Consortium (TSC) to co-create a Sustainable Supply Chain Finance Programme (SCF) that pegs a supplier’s financing rate to their sustainability standards. This global programme allows improved financing for suppliers across 21 countries who demonstrate progress in reduction of greenhouse gas emission - contributing to Walmart’s Project Gigaton, which aims to achieve a total reduction of one billion metric tons (one gigaton) of greenhouse gas emissions by 2030.
The Sustainable SCF is emerging as a powerful mechanism that rewards sustainable products and services from inception to completion. The branch-and-root approach of SCF will create more transparency, and make the fragmented supply chains more traceable and transparent through GLP principles.
A $100-billion green opportunity
A recovery based on green trade financing would help Middle East countries revive a diversification push that stalled during the health crisis. It would also help them reach their long-term Sustainable Development Goals (SDG).
“To meet the SDG targets by 2030, it is estimated that emerging markets need an annual investment of $2.5 trillion, with a large portion of this investment focused on the Middle East,” according to a World Economic Forum 3 report.
“The region is home to some critical sustainable development opportunities, with an estimated annual financing gap of more than $100 billion in the Middle East. For the goals to be met by 2030, investors and banks need to coordinate and connect capital to promote sustainable development.”
Green trade financing solutions support customers, regional governments and corporations, looking to source sustainable raw materials, develop eco-friendly products and trade in commodities that are produced from low-carbon or renewable energies.
The global financing world is turning on its head. Market disruptions are evident everywhere and many conventional methods of raising funds are being replaced by innovation, or sustainable twists that will lead to a world where sustainability is part of the bottom line.