Increasing financing support is vital to boost decarbonisation efforts in “hard-to-abate” industries and remains key to achieving net-zero targets, according to a new report.
Top executives from these industries have called for more help as less than a third believe they do not have adequate budgets to do so, and more than half have not yet set their net-zero targets, a joint study by Abu Dhabi’s clean energy company Masdar and FT Longitude released on Tuesday said.
Reducing emissions in hard-to-abate industries such as cement, steel, aluminium, petrochemicals, shipping, aviation and manufacturing, is also vital for long-term climate change objectives, as industry and transport account for almost half of global emissions.
The report, which identified major hurdles in decarbonisation of heavy industries and transport, found that half of the senior industry leaders are “more confident that net zero in their business is more achievable today compared to a few years ago”.
“Addressing carbon emissions in hard-to-abate sectors is a priority,” said Dr Sultan Al Jaber, UAE Minister of Industry and Advanced Technology, Cop28 President-Designate and chairman of Masdar.
“There is simply no path to net-zero that does not include decarbonising these essential industries.”
The UAE is set to host the next UN Cop28 climate summit in November in Dubai.
The meeting of heads of state, finance and business leaders and members of the civil society will take stock of what has been achieved since the Paris Agreement of 2015 was adopted by most countries.
The agreement aims to limit global warming to less than 2ºC — preferably no more than 1.5ºC — above pre-industrial levels. As Cop28 President-Designate, Dr Al Jaber will help shape the conference agenda and intergovernmental negotiations.
“Cop28 will see the conclusion of the ‘Global Stocktake’, offering a review of progress against the Paris Agreement. We know that the results will show a significant gap in where we are and where we need to be,” Dr Al Jaber said.
“The UAE is committed to addressing this, to reigniting momentum and to bringing the goal of 1.5 ºC within reach.”
Despite the optimism that exists across the industry, and the emergence of innovative new technologies to capture and store carbon, industry executives pinpointed access to finances as a major barrier for accelerating progress.
Up to 60 per cent of organisations surveyed across Europe, the Asia-Pacific, the Middle East, and North America have still not set their decarbonisation targets, the report found.
About 83 per cent and 62 per cent of senior executives from the Middle East and the Asia-Pacific regions, respectively, said they are taking steps to reduce emissions but have not set a target date for completion, according to the report.
“Only 30 per cent of senior executives overall indicated their budgets will be able to meet decarbonisation needs, and more than 50 per cent are concerned about the impact of global economic headwinds on decarbonisation investment,” it added.
In addition to financing hurdles, the report underlined the disparity in available technologies to accelerate decarbonisation efforts.
It also called for greater industry collaboration and importance of increased public sector support as top industry executives called for incentives across “funding, legislation and taxation” support by governments across the world to achieve national net-zero targets.
According to the survey, only 24 per cent of senior executives expected to receive funding or incentives from governments.
More than 40 per cent of those polled believed that without “greater incentives and funding they will be unable to meet their domestic market’s net-zero targets”, the report added.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
