Financing the net-zero transition in the Middle East

For astute financial institutions, the green future is both sustainable and profitable

The Net Zero building nearing completion at Masdar City, Abu Dhabi. Khushnum Bhandari / The National
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As global financial landscapes shift towards sustainability, the Middle East, led prominently by the UAE, is seizing the momentum.

With net-zero carbon emissions as the overarching goal by mid-century, sustainable finance represents a dual advantage: environmental responsibility and untapped economic potential.

Direct evidence of this shift is visible in the surge of sustainable finance in the Mena region, which touched $24.55 billion in 2021, marking a significant 532 per cent growth from 2020.

Bloomberg’s report on the GCC's green bond and sukuk issuances, which accumulated $8.5 billion from 15 deals last year, further solidifies the region’s active engagement in green finance.

Positioned at the forefront of this transition is the UAE.

Beyond the environmental pledges of the Net Zero 2050 charter, there’s a clear economic blueprint. An earmarked investment of $160 billion towards clean and renewable energy sectors over the coming 30 years signals the UAE's commitment to future-proofing its economy.

Moreover, the strategic goal to source 44 per cent of its energy from clean avenues by 2050 indicates a nation preparing for a green economic boom.

Strategically, the UAE's commitment aligns with global trajectories.

The recently endorsed UAE Energy Strategy 2050 and the National Hydrogen Strategy aren’t mere environmental mandates; they are economic signals, laying out sectors ripe for investment and growth, underlining the nation's alignment with its 2050 targets.

Everyone must be at the table to make transformational progress, Dr Sultan Al Jaber says

Everyone must be at the table to make transformational progress, Dr Sultan Al Jaber says

With Cop28 on the horizon, the stakes and opportunities are heightened. This pivotal global event will not only spotlight the UAE's environmental endeavours but will also accentuate its position as an emerging hub for green finance and investment.

For private banks and financial institutions, the climate summit in the UAE offers a prime occasion to gauge, interact with and potentially tap into the flourishing green finance market of the region.

Global implications

As the host of Cop28, the UAE has an exceptional opportunity to shape global financial perspectives on sustainability.

The outcomes of this conference will not only determine environmental policies but also influence global financial flows. Markets, investors and financial institutions will be looking for clear indicators and strategies that merge ecological conservation with economic growth.

The way the UAE navigates this event can set a precedent for how sustainable finance can be effectively leveraged at a global scale.

Digital transformation and green finance

Parallel to the green transition is the undeniable wave of digital transformation, which the financial sector in the Middle East, particularly in the UAE, is undergoing.

Digital platforms, blockchain technology and FinTech innovations are playing crucial roles in shaping green finance's future. Such technology can offer more transparent, efficient and secure means of channelling investment in sustainable projects.

For private banks, understanding and investing in this digital-green nexus could provide a competitive edge, enabling them to offer novel green financial products and services.

Role of private sector innovation

It's worth noting that while government strategies lay the groundwork, the private sector's role in innovating and pushing the boundaries of what's achievable is invaluable.

Private banks and financial institutions are in a unique position to foster innovations in green finance. Through research and development, collaborations with tech firms and partnerships with global financial entities, they can pioneer financial instruments and models that drive sustainable investments at scales previously unimagined.

Watch: UAE launches wind programme in net-zero push

Watch: UAE launches wind programme in net-zero push

The resonance between government policy and private sector activity in the UAE is palpable. Numerous UAE-based financial bodies are recalibrating their strategies to be in tandem with the country's sustainable vision. The burgeoning domestic market for green sukuk, bonds and loans epitomises this synchronisation, suggesting robust growth prospects.

The economic ramifications of this green shift are immense. The region could unlock economic growth of up to $2 trillion via sustainable finance initiatives by 2030, accompanied by significant job creation, according to Strategy&. This isn't just about environmental stewardship; it's sound economic foresight.

Yet challenges persist. Ensuring continuous green finance inflows, building sustainable infrastructure and navigating a dynamic regulatory landscape will be paramount.

For entities, especially private banks, understanding these shifts, adapting investment strategies and capitalising on the evolving opportunities, especially in the backdrop of Cop28, will be crucial.

In short, the Middle East's trajectory, especially that of the UAE, towards sustainable finance is more than an environmental pledge, it's a clear economic strategy.

With Cop28 around the corner, the region’s commitment to environmental responsibility and its potential as a beacon for sustainable finance will be on global display.

For astute financial institutions, the message is clear: the green future is not just sustainable, it’s profitable.

Samir Atitallah is chief executive of Mirabaud Middle East

Updated: November 28, 2023, 8:27 AM