Sustainable Finance in the UAE: Why Businesses need it?

In the past, we talked about "going green" as something separate from finance. But now, working closely with UAE companies, I'm watching the sustainable finance movement unfold, driven by an urgent push to reach Net Zero 2050 and the country's commitment to weaving ESG (Environmental, Social, Governance) principles into every sector. 

Now, banks in the Middle East have been asked to align their portfolios with the government’s sustainability goals. For businesses, this means access to funding is directly tied to how environmentally responsible they are. This means if a business wants long-term access to finance, sustainability isn’t optional anymore—it’s expected.

But What Exactly is Green Money?

Think of it this way: you walk into a bank for a loan to expand your factory. The traditional way - the bank looks at your balance sheet, your cash flow, and says yes or no.

The sustainable way - They still look at your finances, but they also want to know how you’ll use that money. Will you install solar panels on that new factory roof? Will you upgrade to energy-efficient cooling systems that slash your water and electricity use? Will your new company cars be hybrid or electric?

If the answer is yes, you’re not just getting a loan. You’re often getting a better deal. That’s the heart of it.

What Banks in the UAE Are Offering?

• Green Loans

These funds are tied to specific eco-friendly projects. Think solar PV installation, a water recycling plant, or electric vehicle fleets. The bank will want to see the project plans and how you’ll track the environmental impact.

• Sustainability-Linked Loans

This loan isn’t for a specific project, but its terms depend on meeting your company’s overall sustainability targets. For example, if you achieve a pre-agreed target—like reducing your carbon emissions by 15% in two years—your interest rate gets a discount.

• Green Bonds

For larger, listed, or organized groups, issuing green bonds can be an attractive way to raise capital. In 2023 alone, UAE green bond sales reached approximately $10.7 billion, which is about 45% of the total green bond issuances in the Middle East and North Africa (MENA) region.

• Green Mortgages

Banks like Mashreq Bank and First Abu Dhabi Bank (FAB) offer preferential rates on mortgages for properties with a high sustainability rating.

• Transition Financing

If your business is moving toward lower emissions but isn’t there yet, transition finance helps bridge the gap. The focus here should be on credible plans which will make governance and monitoring crucial.

The Criteria: What the Banks Really Want to See

As an expert, I know that you will get the bank's approval when you have all the relevant documentation and proof. This means it’s not about just saying you’re green. You have to show it.

• A Clear, Defined Project: You need a concrete plan. “Becoming more eco-friendly” is too vague. “Installing a 500kW solar system to offset 30% of our grid energy consumption” is what gets you approval.

• Transparent Reporting: How will you measure the impact? Banks may want regular reports on energy savings, carbon reduction, or water saved. This is your proof of performance.

• Solid Financials: Your green project must be backed by a fundamentally sound business. Yes, the sustainability angle enhances your application, but it can never replace the need for good financial planning.

• Third-Party Verification: To approve larger loans, banks may request that third parties verify the green credentials of your project and examine your KPIs.

What Are The Advantages of the Sustainable Loans for the Businesses?

If your business is planning to get a sustainable loan, then you could have multiple benefits for your business by not only increasing public confidence but also ensuring that you are compliant with the environmental regulations. Some of the advantages include the following:

• Lower interests:Your business can enjoy friendly interest rates on the sustainable finance based on the business project and its impact on the environment.
• Increased public confidence and reputation: The sustainable finance would depict that the business is compliant with the stringent environmental regulations, and hence it would increase the reputation of the business among the public.
• Access to a more friendly capital pool: Businesses that are getting aligned with the environmental regulations would get more opportunities globally for the sustainable finances, and the banks give priority to the environmentally friendly businesses.
• Technical assistance: Many banks in the UAE have already started providing the guidance to the businesses on ESG, its strategies, etc., which would help the UAE businesses a lot.

My Final Thoughts

As I advise businesses on their tax and financial plans, I often point out that cost advantage is just as important to sustainable financing as compliance. For companies, this means preparing today for the questions banks will ask tomorrow.

The opportunity is huge, but it requires honesty and planning. Banks are getting smarter at spotting vague claims, so you need to show evidence - energy statistics, certifications, and results that demonstrate how your business is contributing to the UAE’s green agenda.

Why Choose Us?

The CDA’s team is more than a mere accounting and auditing team. The experts in our firm are always there to provide the assistance to the business in maintaining accurate financial records and to stay compliant with the regulations. The team always stays updated regarding the new regulations in the land and also regarding the new requirements. Being aware of the emerging sustainable finance requirements, our team would enable your businesses to sort your books and accounts based on sustainability and enable you to get seamless finances.

To know more about our services, connect with our team now!

Mitesh Maithia

Tax Manager

Mitesh is a Tax Professional with expertise in direct, indirect, and international taxation, including transfer pricing, since 2018. Passionate about making complex tax matters simple, he shares insights to help businesses stay compliant and forward-looking.