PIFs green bonds yet another step in line with SGI

The Saudi Green Initiative Forum has rolled out in Riyadh to bring together leading public and private sector ESG players, with Saudi Arabia taking the lead in the industry as it did during its successful G20 Presidency last year.

While the Kingdom’s net-zero emissions commitment has been set for 2060, or earlier according to Saudi Aramco, there is something that Saudi Arabia can do now to lead the way in the green debate.

The Kingdom has often been accused of being too slow in adopting meaningful and radical changes, but this perception has to change now after the announcement by the Public Investment Fund that it will soon announce its first green debt deal with borrowing linked to sustainability ESG — environmental, social and governance principles, according to PIF Gov. Yasir Al-Rumayyan. In doing so, the PIF, according to Al-Rumayyan, will be the world’s first sovereign wealth fund to announce such a green bond issue and the setting of its own matrix benchmarks.

Despite a noticeable increase in both the scale and speed at which ESG factors are now driving investment decisions, some gaps remain. The Global Public Investor Survey by the Official Monetary and Financial Institutions Forum think tank, which sampled 102 institutions overseeing a combined $7 trillion in assets, indicated acceleration due to the COVID-19 pandemic, but with different uptake by pension funds, sovereign wealth funds and central banks. According to the OMFIF, pension funds led the way, followed by sovereign funds and central banks, which reported that green bonds remained their most popular ESG option.

Regulators are aware of this deficiency, and many are busy rolling out numerous ESG disclosure and reporting recommendations to help markets avoid greenwashing — paying lip service to ESG principles such as climate change — and ensure the long-term risk management of sustainability factors. In this respect, the PIF is showing the way, as it was reported that in July this year that the SWF had sent banks a request for proposals to set up a framework for ESG issues and hired banks to be members of its ESG panel for medium-term capital-raising strategies.

The banks reported to be a part of this project include Credit Agricole, Deutsche Bank, Goldman Sachs, HSBC and Standard Chartered. The PIF governor also said that the wealth fund was working with BlackRock on the ESG framework. Establishing such a PIF ESG framework could lead to a wider market reception for debut multibillion green bond sales linked to sustainability, especially for the Saudi megaprojects that the PIF owns.

One such company, the Red Sea Development Co., which is building a new beach resort in the Kingdom, secured a $3.8 billion green loan earlier this year for the new hotels it is planning to build, which will be powered by renewable energy. Besides the PIF ESG green bond issuance, the Kingdom recently announced its Green Initiative, followed by the more ambitious Middle East Initiative. The former will see the planting of 10 billion trees in Saudi Arabia and the rehabilitation of 40 million hectares of degraded land, while the latter will plant a total of 50 billion trees in the Middle East, according to the PIF governor, changing the landscape of the region for generations to come and meeting global climate concerns.

Besides the PIF, the government of Saudi Arabia has also taken initiative through the Ministry of Finance to assess the issuance of ESG bonds, and according to reports, hired HSBC and JPMorgan as structuring agents for the Kingdom’s sustainability financing framework. Institutions like ACWA Power, APICORP and SEC are also planning or have launched green bonds, with others planning to do the same so that it becomes the norm, rather than an exotic exception. All these ESG initiatives should now dispel the perception of the Kingdom and its premier institutions as slow acting and afraid to take the lead, and replace it with one that underscores the Kingdom’s willingness to lead the way and commitment to be at the forefront of radical change.

It will also come as no surprise to see some of the leading Saudi banks also start to adapt ESG lending principles and follow in the footsteps of HSBC Saudi Arabia. In August, the bank announced the first environmental initiative investment fund in Saudi Arabia, known as the HSBC Global Equity Climate Change Fund. Others are sure to follow — not only in the Kingdom, but also in the wider Gulf Cooperation Council region.

• Dr. Mohamed Ramady is a former senior banker and Professor of Finance and Economics, King Fahd University of Petroleum and Minerals, Dhahran.