Middle East ESG and Green Agenda

by | Aug 25, 2022 | Industry Insights

Graphic of tree coming out of a globe

Chetan Kapoor, Partner of Synergy Consulting, Inc. shares insights:

Middle East Net Zero commitments are targeted for each GCC country between 2050 and 2060 through a green growth strategy together with Environment, Social, and Governance (ESG) guidelines. To attain Net Zero government commitment must be validated. Strong actions are being seen with Egypt, Morocco, Qatar, and UAE incorporating green building codes and the UAE aligning its legal system with international standards including business, labor, family, personal status, crime, intellectual property, and e-commerce.

ESG is in its infancy yet a critical requirement to gain the attention of international investors as part of the analysis process of identifying risk and growth opportunities in the Carbon Market. Methodologies have been created for the Pan Arab and UAE regions, by S&P Dow Jones / Hawkamah, that provide guidance for businesses to track performance. One of the world’s largest stock markets, the Saudi Exchange, with a total market capitalization of over $2.5 trillion, has published ESG guidelines in alignment with Saudi Arabia’s Vision 2030 initiative advising companies on ESG integration and growth opportunities.

The Arab world is highly vulnerable to climate change as seen with their shared dependency on fossil fuels and being the most water-scarce region of the world, containing only 1.4% of the world’s renewable fresh water. It is vital to keep the established fossil fuel infrastructure in play until the Green infrastructure is built. Across the region, new investments of $2.8 billion are focused on renewable energy projects. For success, green initiatives require involvement across all sectors and uniform financial leadership emanating from Central Banks.

International investment opportunities that are utilized in the region are the green bond and the Sukuk having sales up to 36% YOY. Green Sukuk or Islamic bonds are an established culture fit being compliant with Sharia Law with common ESG characteristics. As an extension of the green market, these bonds receive second-party opinions from independent evaluators and are aligned with International Capital Market Associations Green Bond Principles.

As the Middle East energy transition is in the early stages it makes sense to establish a regional framework addressing common issues such as investor security, standards, measurable policies, a common ESG index, cross-border programs Debt for Climate Swap, and State-Owned Enterprises(SOE). A framework of this could incorporate Green financial strategies and energy transition plans with the opportunity for each nation to customize.