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Middle Eastern governments must innovate to unlock green investment in the region, study finds

DUBAI: Governments in the Middle East and North Africa must adopt new tools and policies and work together to accelerate the transition to a low-carbon economy, according to a new report.

It was published by the Mohammed bin Rashid School of Government in Dubai and co-authored by Jeffrey Beyer, Managing Director of Zest Associates, a UAE-based sustainability consultancy.

“The MENA (Middle East and North Africa) region has the opportunity to capitalize on its resources, create jobs and fight climate change, but this will require much greater investment from the private sector,” Beyer said.

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

The report, titled “Financing a Green Transition in MENA,” was funded by HSBC, the largest and most widely represented international banking organization in the region. It focuses on how the region could finance a post-COVID green recovery and examines green finance activities in Saudi Arabia, United Arab Emirates, Bahrain, Egypt, Kuwait, Iraq, Oman and Qatar. .

It offers a series of regional and national recommendations on how governments can mobilize the $230 billion in annual financing needed for the Arab world to meet the United Nations Sustainable Development Goals, a key measure of the transition to emissions. net zero.

“HSBC is playing a leading role in mobilizing the transition to a net-zero global economy, not only by financing it, but by helping to shape and influence the global political agenda,” said Sabrin Rahman, Chief Executive of HSBC, responsible for sustainable development for Europe. , the Middle East, North Africa and Turkey.

“This report presents measures that the Middle East region can implement to ensure competitiveness and connectivity, but also to stimulate new sectors, employment and business models in order to attract investment flows. international.”

According to the report, governments in the MENA region are well placed to shape the means to raise and channel green finance. Public expenditure as a percentage of gross domestic product is high in many of the countries under review, averaging 20% ​​of GDP and reaching 28% in Saudi Arabia, compared to a global average of 17%.

The MENA region is also home to some of the largest sovereign wealth funds in the world, as well as many powerful state-owned companies.

“There are many success stories across the Middle East that show how government action can create the right conditions for green investment. For example, the UAE’s Sustainable Finance Working Group is establishing common standards that will channel finance towards UAE’s sustainability goals,” Beyer said.

“In Saudi Arabia, the Saudi Electric Company developed a green sukuk framework that enabled it to access capital markets using a traditional Islamic financial instrument. Initiatives like these can be adapted to leverage green finance in other countries in the region.

According to the report, MENA countries can increase private sector green investments in two main ways. One is to take action to improve the “enabling environment,” the conditions that affect the viability of sustainable investments, including policy and governance frameworks, as well as programs or initiatives that help fund flows. For example, countries could launch green investment banks, create entities to facilitate energy efficiency markets, and develop a common green taxonomy.

The other is to adopt specific financial and economic tools to raise and deploy capital, manage risk and mobilize private sector investment. For example, 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.

National recommendations reflect unique national circumstances and focus on areas where action is currently limited or completely lacking, rather than suggesting that existing initiatives be improved or expanded.

The regional recommendations target areas where collaboration would produce greater returns than if the measures were implemented by each country individually.

“There are areas where collaboration among MENA countries has the potential to be a game-changer in the transition to net zero,” Beyer said.

“For example, establishing a carbon market in the MENA region would be a cost-effective way to reduce carbon emissions while remaining regionally competitive, and creating a standard definition or “taxonomy” for what is considered “green” would bring clarity to investors, unlock sustainable finance and avoid greenwashing.

The report’s findings were presented by Beyer during a panel on green finance at the Arab Green Summit in Dubai on June 21-22. Its authors hope it will be a resource for governments across the MENA region as they try to attract investment for renewable energy projects, energy efficiency improvements, low-carbon transport and green buildings.

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