Investment in green projects coupled with sustainable finance could help the Gulf Cooperation Council (GCC) countries unlock up to $2 trillion in GDP contribution by 2030, if investment opportunities are tapped across key industries, according to a recent report by Strategy&.
The paper recommends that GCC governments open up the region’s capital markets to help accelerate investment in sustainable projects. Currently, GCC countries recycle, reuse, or recover only around 10 percent of plastic and metal waste, resulting in significant waste. Increasing recycling rates in the GCC to a more achievable 40 percent would create about 50,000 new jobs to support a $6 billion market, the report says.
Is sustainable investment viable?
Experts at the first conference on ‘Is Investing in Sustainability Economically Viable?’ emphasized that sustainable investment is not only viable and profitable, but will also unlock huge potential for the region’s economy going forward. Organized by the Dubai Stockbrokers and Investment Services Group (DSIG) and held at the Dubai Chambers, speakers urged industry stakeholders to work closely to unlock this transformative potential for the GCC countries as they transition from a hydrocarbon-dependent economy to a more sustainable one.
Need for strengthening capital markets
The report by Strategy& highlighted that the GCC governments need to continue opening up and strengthening the region’s capital markets, which are currently underdeveloped, to allow investors to easily exit successful investments and access GCC funds held by high-net-worth individuals and families.
Opportunities in green finance
Green finance represents a significant and currently untapped opportunity for the GCC countries, which have well-developed capital markets. The report estimates that the cumulative GDP contribution of six major non-oil sectors (agriculture, food, construction, power, transport, water, and waste management) can reach $2 trillion through 2030, potentially adding over 1 million jobs.
Recommendations for GCC governments
To capitalize on this opportunity, the report recommends that GCC governments focus on four priorities: promoting environmental sustainability, creating a green sovereign wealth fund, strengthening capital markets, and developing standard and transparent reporting mechanisms for environmental performance.
Opportunities in the agriculture and food sector
For example, in the agriculture and food sector, governments can take steps to restructure supply chains, safeguard imports, and make the overall sector more sustainable – a critical need following the COVID-19 pandemic. Investors in this sector can expect healthy operating margins of above 15 percent in various opportunities across the value chain, such as waste electrical and electronic equipment recycling, plastics and packaging recycling, secondary metal semi-finished producers, or car spare parts manufacturing.
Potential in green hydrogen
The report also highlights the clear opportunity in green hydrogen, with production technology being easily accessible and the global supply and demand analysis indicating that exporting countries can potentially capture a market of approximately 200 million tonnes of green hydrogen by 2050, worth $300 billion yearly. The green hydrogen export market can also create up to 400,000 operations and maintenance jobs.
UAE’s commitment to sustainable finance, net-zero emissions
The United Arab Emirates (UAE) has emerged as a pioneer in sustainable finance within the Gulf Cooperation Council (GCC) region. This is marked by the Dubai and Abu Dhabi Sustainable Finance Declarations in 2019, as well as the publication of the UAE’s first guiding principles on sustainable finance in January 2020. The UAE Sustainable Finance Framework 2021-2031 has set a common national agenda for sustainable finance, while the Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) have collaborated with global organizations to provide training programs for finance professionals.
The UAE was the first government in the region to commit to a net-zero emission objective, accompanied by substantial initiatives. These include mandating environmental, social, and governance (ESG) reporting from publicly traded corporations. Recently, Abu Dhabi’s sovereign wealth fund, Mubadala, established an independent ESG business, and Dubai’s Emirates NBD raised $1.75 billion in the Gulf region’s first sustainability-linked loan. Additionally, Masdar Green is issuing green bonds to facilitate sustainable asset development for Masdar City’s future growth.
GCC’s progress in sustainable finance
The financial sector is a significant contributor to the GDP of the GCC countries, presenting an opportunity to accelerate the adoption of sustainable finance practices in the region. The GCC countries have made significant progress in developing sustainable finance frameworks, with a focus on promoting sustainable investments, supporting green projects, and encouraging sustainable financial institutions.
Sustainable cities, diversifying energy sources
These efforts include developing sustainable cities powered by renewable energy, such as NEOM in Saudi Arabia, facilitating carbon-neutral urban development projects like Masdar City in the UAE, and diversifying energy sources to reduce the carbon footprint across all GCC nations. The GCC countries have adopted various policies and regulations to support sustainable finance, including guidelines for green bonds, environmental risk assessments for financing, and sustainability reporting requirements for companies.
The popularity of green finance is surging in the GCC, as evidenced by the record high total value of over $8.5 billion in green and sustainable bonds and Sukuk issuance in 2022, compared to just $605 million in 2021.
Global momentum in sustainable investments
Globally, an estimated investment of $4.2 trillion per annum is required to meet the Sustainable Development Goals (SDGs) as laid down by the United Nations. This looks achievable because the total financial assets industry (banks, asset managers, and institutional investors) is at $379 trillion. By the end of 2022, the global investments in sustainable assets touched $30.3 trillion, with non-U.S. markets showing a 20 percent growth in assets. The total value of sustainable investment products, encompassing bonds and funds, reached more than $7 trillion in 2023, a 20 percent increase from 2022, according to the latest World Investment Report 2024 published by the United Nations on June 30 this year. The sustainable finance market continues to grow, demonstrating its significance and the commitment of the industry.
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