A new coalition of UAE companies has been established to develop and grow a carbon market in the Emirates.
The newly established UAE Carbon Alliance, launched by the UAE Independent Climate Change Accelerators (UICCA), will help support the transition of companies to a green economy, as set out in the UAE Net Zero by 2050 Strategic Initiative.
A carbon market is a trading system in which carbon credits are bought and sold.
Companies or individuals can use such markets to compensate for their greenhouse gas emissions by purchasing carbon credits from groups that remove or reduce greenhouse gas emissions.
Last year, The Abu Dhabi Global Market, the UAE capital's financial free zone, announced plans to team up with AirCarbon Exchange (ACX) to create the “world’s first fully regulated” carbon trading exchange and clearing house in the emirate.
Carbon reduction is both fundamental and non-negotiable for the health of our planet
Sheikha Shamma,
UICCA
Chaired by Sheikha Shamma bint Sultan, president and chief executive of UICCA, the UAE Carbon Alliance is made up of companies from various sectors that recognise the importance of carbon credits in achieving net-zero goals.
The alliance’s founding members are ACX, First Abu Dhabi Bank, Mubadala Investment Company, Abu Dhabi National Energy Company and Abu Dhabi Future Energy Company, in addition to UICCA.
The alliance will look to establish national co-operation in decarbonisation, develop standards and frameworks for constructive carbon financing, increase education and knowledge of carbon markets and support organisations on greenhouse gas emission reduction projects.
The establishment of a transparent carbon market will direct investment and capital towards projects that support decarbonisation, while also providing corporations with a market-based mechanism to further their transition journey and achieve reduction targets.
“Carbon reduction is both fundamental and non-negotiable for the health of our planet," said Sheikha Shamma.
"To reach net zero, we must actively reduce our emissions across all sectors and it is imperative that public and private sectors take active steps to reduce emissions.
"Productive partnerships like the UAE Carbon Alliance will help the world find practical solutions on the path to decarbonisation, by funding the actual physical carbon abatement efforts and making them financially, environmentally, and socially viable.
"The UAE Carbon Alliance will establish the UAE as a leading hub for high integrity, high quality carbon markets, to help fund the much-needed action to limit global warming to 1.5°C.”
The UAE Carbon Alliance will convene its first executive committee meeting with all its founding members this week.
UICCA will play will help guide the deployment of carbon credit solutions in the region by facilitating stakeholder collaboration across the public and private sector, as well as acting as the secretariat of the alliance.
The alliance will represent buyers and sellers of carbon credits, traders, climate project developers, financial institutions, corporations, exchanges and brokers from across the UAE and beyond.
What is a carbon market and how does it address climate change?
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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.”
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