When Necessity and Opportunity Collide – ME Climate Change Struggle stakes couldn’t be higher

Dire environmental predictions combined with appealing economic incentives are driving the Middle East to new heights of sustainability supporting actions.

This month we are focusing on the impact of Glasgow’s COP26 summit and substantial new initiatives and changes being implemented in its immediate aftermath. In the Middle East – one of the worst-affected regions for climate change and often among the first in line for fresh climate disasters – there is a new focus towards making sustainability a daily reality.

From the destruction in Iran and Northern Oman caused by Cyclone Shaheen, to flash floods in Saudi Arabia and a slew of record-breaking heat waves, climate change is a real and constant threat to life and security in the Middle East. The region is warming at twice the rate of the rest of the world, exacerbating existing issues such a water security, air pollution and biodiversity reduction. Though, as the Guardian puts it, this may only be the start of much worse to come, heralding ‘Apocalypse Soon’ if things don’t change for the better fast enough.

Approximately 85% of the GCC region’s food is imported and 14 of the 33 ‘most likely water-stressed countries’ in 2040 are located in the Middle East. Providing sufficient food and clean water for all ME inhabitants will continue to become more costly through climate change under current circumstances.

Not only is there the looming threat of destruction through natural disasters, the rising ‘opportunity costs’ of inaction are growing more significant almost daily. Going green is the rising currency when it comes to international financing and investment. BlackRock, the world’s biggest asset manager with $7 trillion under management, recently announced that it plans to exit all investments considered to have a “high sustainability risk”. 

While the other articles in this month’s newsletter focus on some of the key sustainability investments and physical projects underway in the Middle East, here we explore the expansion and importance of green financing in the region.

Saudi Arabia announced in late September 2021 its intention to release and sell its first green bond in early 2022. More details continue to be released to the international investor audience, such as the national Public Investment Fund’s (PIF) intention to funnel proceeds from the green bond into sustainable ventures like the Red Sea tourism megaproject. Already, the bond is being met with keen interest from asset managers from across the world, who are eager to know more about the exact direction – and overall appetite – that Saudi Arabia has in mind for this pivotal green financing vehicle.

Given that Saudi Arabia has made its 2060 net-zero pledge, yet still maintains the highest carbon-dioxide emissions per capita among all the G-20 countries, it’s not difficult to imagine further green bonds being issued quickly and enthusiastically, if this initial offering is well received.

The UAE, which is similarly keen to diversify its economy and financing apparatus away from hydrocarbon reliance, is also on the road to greener investment pastures. 20^th November saw the Dubai Financial Services Authority (DFSA) launch a new task force dedicated to driving up standards of sustainable finance across the region and wider region. The Task Force on Sustainable Finance (TFSF) aims to support the application and adoption of existing best practices and new financing vehicles that will encourage the kind of long-term ESG (Environmental, Social, and Governance) improvements that are not just profitable, but essential.

The need for self-preservation and satisfying the profit incentive have never been so closely aligned in global finance than they are today. This is well understood in the UAE and Saudi Arabia, and it is causing a sea-change in investment mentalities and practices.

This presents an exciting future for green bonds and wider ESG practices in both countries, whose lead is often followed by other GCC nations. 2022 will be a crucial ‘yardstick year’ in measuring the performance of green financing, given the added impetus of COP26 agreements and the prevailing mood of international investment to shift towards sustainability. There are already widespread predictions that 2022 will be the first trillion-dollar-year for green bonds, an outcome that would go some way to opening minds and purse strings towards further and faster green financing for global sustainability solutions.

https://www.theguardian.com/world/2021/oct/04/cyclone-shaheen-hits-oman-and-iran-causing-flooding-and-deaths

https://www.theguardian.com/environment/2021/oct/29/apocalypse-soon-reluctant-middle-east-forced-to-open-eyes-to-climate-crisis

https://gulfbusiness.com/climate-change-what-is-the-gccs-role-in-this-equation/

https://english.aawsat.com/home/article/3214631/saudi-arabia-prepares-1st-gov%E2%80%99t-issuance-green-bonds

https://www.bloomberg.com/news/articles/2021-11-18/esg-investors-take-sides-as-saudi-arabia-readies-green-bond-sales

https://www.arabnews.com/node/1970576/business-economy

https://www.arabianbusiness.com/gcc/uae/dubai-sets-up-task-force-to-drive-green-finance-ambitions