Governments can unlock green investment

29 June 2022
Study highlights need for new tools, policies and collaboration to tackle climate change

Governments in the Middle East and North Africa (Mena) need to adopt new tools and policies and collaborate in order to transition into a low-carbon economy, a new report has confirmed.

“The Mena region has an opportunity to capitalise on its resources, create jobs and tackle climate change, but this will require much greater investment from the private sector,” said Jeffrey Beyer, managing director of UAE-based consultancy Zest Associates, who co-authored the new report, which Mohammed bin Rashid School of Government (MBRSG) published.

“There are actions governments can take now that are low-cost, relatively easy to implement and would have a big impact in making the Middle East a more attractive environment for green investment.”

Funded by HSBC, the report focuses on how the Mena region can finance a post-Covid green recovery. It reviewed green finance activities in Bahrain, Egypt, Kuwait, Iraq, Oman, Qatar, Saudi Arabia, and the UAE.

According to the report, governments in the region are well-positioned to shape the ways in which green finance can be raised and channelled.

State spending

Government expenditure as a percentage of GDP is high in many of the above mentioned countries, averaging 20 per cent of GDP, with a high of 28 per cent in Saudi Arabia, compared to a global average of 17 per cent.

In addition, the Mena region has some of the world’s largest sovereign wealth funds, alongside many powerful state-owned enterprises.

The report notes success stories from across the Middle East that show “how government action can create the conditions for green investment to flow”.

It cited the UAE Sustainable Finance Working Group, which is establishing common standards that will channel finance towards the UAE’s sustainability goals.

In Saudi Arabia, the Saudi Electric Company has also developed a green sukuk framework that has allowed it to tap into capital markets using a traditional Islamic finance instrument.

“Initiatives like these can be adapted to mobilise green finance in other countries in the region,” said Beyer.

The report suggests the need for governments to improve the enabling environment for green finance, which may include launching so-called green investment banks, establishing entities to facilitate energy efficiency markets, and developing a common green taxonomy.

They also need to adopt specific financial and economic tools to raise and deploy capital, manage risks and mobilise private sector investment, the report said.

“Countries could issue green bonds or green sukuk, tap into international climate finance, and use sovereign wealth funds and state-owned enterprises to finance and operate new low carbon industries.

“The national recommendations respond to unique domestic circumstances and focus on areas where action is currently limited or absent, rather than suggesting that existing initiatives be strengthened or scaled up.”

Beyer also cites areas where collaboration among countries in Mena has the potential to be a game-changer in the transition to net zero.

“For example, establishing a Mena carbon market would be a cost-effective way of lowering carbon emissions while remaining regionally competitive, and creating a standard definition or taxonomy for what counts as green would bring clarity to investors, unlock sustainable finance and avoid greenwashing,” explained Beyer.

Image: Pixabay

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