DCarbon chairman expects ESG finance to double for Cop27 host Egypt

Exclusive: Decarbonisation opportunities are ripe for investment, says Ehab Shalaby

Environmental, social and governance (ESG) investments in Cop27 host Egypt are expected to double annually in the coming seven years, Ehab Shalaby, head of Cairo-based sustainability consultancy DCarbon, has said.

Egypt is hosting the UN Climate Summit from November 6 to November 18 in Sharm El Sheikh, with financing for both climate change mitigation and adaptation high on the agenda.

This time, Egypt is ready with a portfolio of projects that are clearly ready for being financed.

DCarbon chairman Ehab Shalaby

Investor appetite for sustainable finance that incorporates ESG principles has been mainly concentrated in advanced economies, but emerging markets reported a surge last year, according to the International Monetary Fund.

ESG investments now make up about 18 per cent of foreign financing for emerging markets, excluding China, quadruple the average for recent years, the fund said.

With Cop27 as an accelerator and decarbonisation opportunities in Egypt, particularly in the energy and real estate sectors, Mr Shalaby said the time is ripe to attract ESG investments.

“It will double because this time, Egypt is ready with a portfolio of projects that are clearly ready for being financed,” he told The National.

Preparing for Cop27

DCarbon, founded by Mr Shalaby in 2015, drives and manages sustainable transitions on corporate, government, regional and global levels.

It works with clients across 10 major sectors, including banking, financial, oil and gas, petrochemicals, construction, real estate, health care and information and communications technology.

The company’s main geographical focus is Egypt but it also has corporate customers in Bahrain and Kuwait. It plans to expand to the UAE and Saudi Arabia next year.

Mr Shalaby has been a researcher, lecturer and consultant in the field of the economics of sustainable development for more than 15 years.

His work includes the preparation of Egypt’s 2015 report on its Intended Nationally Determined Contributions (INDCs) for mitigating and adapting to climate change and the energy pillar for the country’s Sustainable Development Strategy 2030.

The DCarbon team includes specialists in sustainability and climate change from political, economic and technical backgrounds.

In preparation for Cop27, DCarbon has organised sessions with the Egyptian Stock Exchange (EGX) to train companies and institutions on how to deal with climate finance data and prepare sustainability reports.

It has also held workshops for Egypt’s youth and civil society organisations.

The consultancy will be hosting several side events at Cop27, including one on the Global Reporting Initiative, an independent international organisation that helps to unify standards for sustainability reporting.

Opportunities and challenges

Mr Shalaby believes Egypt and other developing countries in the Middle East and Africa have “very good opportunities to attract finance”, but mainly in climate change mitigation, to reduce carbon emissions.

“When it comes to developing countries, we are more focused on adaptation. But when it comes to developed countries, they are more focused on mitigation,” he said.

“They want to direct finance towards mitigation and not adaptation.”

Mr Shalaby identified six major sectors that are expected to lead development in the Middle East and Africa: energy and electricity, agriculture, logistics, information and communications technology, construction and property, and transport.

“These are the major six drivers that are going to drive socioeconomic development in the region, but unfortunately, these six sectors are the biggest contributors to greenhouse gas emissions, so we need six decarbonisation plans for these sectors,” he said.

The main challenges for decarbonisation include market know-how, policies and regulations, technology transfer and finance.

“As a region, we can work on two of them: the market know-how and the policies and regulations,” Mr Shalaby said.

“The developed countries will need to work on the other two challenges, which are technology transfer and finance.”

He cited positive regulatory developments in Egypt, such as decrees 107 and 108 issued by Egypt’s Financial Regulatory Authority last year.

The decrees require companies listed on the EGX and companies in the non-banking financial sector to comply with ESG reporting, in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD).

The Suez Canal Economic Zone expects to sign green energy deals worth $25bn at Cop27. Photo: Suez Canal Economic Zone

Green hydrogen and property

Green hydrogen and property will be the two major sectors that will be highlighted at Cop27 and Cop28, which will be held in the UAE, as top opportunities for decarbonisation, Mr Shalaby said.

The European Green Deal reached in 2020 set a target of no net greenhouse gas emissions by 2050.

Russia’s invasion of Ukraine and the ensuing energy crisis in Europe have made the green energy transition in the continent even more pressing.

Hydrogen is projected to account for 12 per cent of global energy use and 10 per cent of carbon dioxide emissions reductions by 2050, according to the International Renewable Energy Agency.

At the same time, Egypt aims to increase its renewable energy sources to 42 per cent by 2035, from about 11 per cent in 2019.

Egypt’s Suez Canal Economic Zone has signed more than a dozen initial agreements with international companies this year for green hydrogen and ammonia production, and expects to finalise about $25bn worth of green energy deals at Cop27.

Green construction is “one of the largest investment opportunities of the next decade” as cities in emerging markets expand at a fast pace to keep up with high population growth and rapid urbanisation, said a 2019 report from the International Finance Corporation.

The IFC estimates that investment in green buildings in emerging market cities will reach $27.4 trillion by 2030.

Egypt is building 14 new urban cities, including its New Administrative Capital east of Cairo and New Alamein City on the Mediterranean coast.

While the business case for ESG investments is promising, there are many other aspects of climate finance that will be contentious at Cop27 — from unmet pledges for adaptation finance to loss and damage compensation.

Egypt is wearing “three hats” at Cop27, Mr Shalaby said — one as representative of the world, one as voice of the region “leading African negotiators and co-ordinating Arab negotiators” and one simply as Egypt.

“The success of Cop27 from my perspective is seeing some sort of implementation road maps that have been run through a consensus,” he said.