Flying High with Sustainable Finance
By Ben Poole, Columnist, TMI
A desire to expand its Abu Dhabi-based Eco-Residence for cabin crew led Etihad to become the first airline globally, and the first business in the United Arab Emirates (UAE), to raise funding tied to the UN Sustainable Development Goals (SDGs). A partnership with the First Abu Dhabi Bank and Abu Dhabi Global Market delivered the end goal, highlighting the region’s expertise as a hub for sustainable financing.
Etihad Airways, the national carrier of the UAE, takes sustainability extremely seriously. The aviation giant follows the ‘triple bottom line’ approach to ensure social, environmental, and financial sustainability – and aims to do business in a way that adds value to employees, communities, and the planet.
With this approach in mind, in January 2020 Etihad became the first airline in the world to secure funding for a project based on its compatibility with the SDGs. The company successfully borrowed €100m (AED404.2m) – thanks to its partnership with First Abu Dhabi Bank and Abu Dhabi Global Market (ADGM) – to support expansion of the Etihad Eco-Residence, a sustainable apartment complex in Abu Dhabi’s Masdar City for its cabin crew. The deal will enable Etihad to fund long-term leases of the new complex.
For those who are not familiar with ADGM, it is an international financial centre and free zone located on Al Maryah Island in Abu Dhabi. Fully operational since October 2015, ADGM is a key pillar of Abu Dhabi’s Economic Vision and offers long-term partnership and collaboration – locally, regionally and internationally. ADGM has been involved in several ‘firsts’ from launching the inaugural application programming interface (API) framework in the MENA region, to establishing the world’s first digital courtroom.
Building the right framework
This global aviation ‘first’ was possible, not only because of the partnership of ADGM and First Abu Dhabi Bank, however. Credit has to go to Etihad for the development of its robust Sustainable Development Financing Framework. As Daniel Tromans, Director of Treasury, Etihad, explains: “This framework represents a vital cornerstone of the company’s pursuit of sustainable funding. It articulates the type of projects we want to engage in as part of our broader commitment to the SDGs. And once we have identified suitable projects under the framework, they are eligible for financing using the proceeds of sustainable financing.”
Developing the framework, and reaching the point of putting it into action, was no mean feat, however. “The framework was developed based on best practice by treasury, in close conjunction with colleagues in the sustainability team,” Tromans explains. The framework covers Etihad’s overall position with respect to the SDGs, aligned with broader Etihad Aviation Group sustainability strategies.
In demonstrating the types of projects that the company wants to raise finance to support, the framework highlights seven priority categories. Each of these are linked to specific SDGs, as well as to the International Capital Markets Association (ICMA) Green bond and Social bond principles.
The seven categories in question are:
- Green Buildings
- Investment in Women
- Reduction of Carbon Footprint
- Waste Management and Recycling.
- Humanitarian Efforts
- Wildlife Protection
Etihad’s Sustainable Development Financing Framework also carefully details the project selection criteria, as well as the governance and reporting that the company has committed to. The Etihad Eco-Residence, met the requirements for two of the UN’s 17 Sustainable Development Goals – Goal 7, Affordable and Clean Energy, and Goal 9, Industry, Innovation and Infrastructure.
Validating the framework
In order to ensure the validity of the company’s sustainable finance endeavours, Etihad engaged Sustainalytics, a global ESG research, ratings and analytics firm, to review the Sustainable Development Financing Framework and confirm its alignment with the ICMA’s Sustainability Bond Principles.
Having reviewed the framework, Sustainalytics issued a ‘Second Party Opinion’, which verified Etihad’s sustainability credentials. “This backing was a key condition for the €100m sustainability loan, as it demonstrated to First Abu Dhabi Bank and Abu Dhabi Global Market that Etihad had adopted best practice in sustainability,” notes Tromans. “We were also one of the first organisations in the UAE region to obtain independent validation of our sustainable finance framework, and we feel this is important in promoting sustainable innovation within the UAE.”
Tromans also reiterates that, “while the framework played a vital role in securing the sustainable funding for the Eco-Residence project, it is very much a long-term document. As such, it can – and will – be used again for further sustainable transactions. Etihad does not stand still, and treasury will be looking for more opportunities to support the business in meeting its ambitious sustainability goals”.