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GCC economy could get $2 trillion boost via green finance by 2030

Each GCC government should create a credible green sovereign wealth fund to engage with and attract international investors, recommends report

Developing the right structure and mechanisms for green finance can help the GCC countries unlock up to $2 trillion in GDP contribution and generate more than one million jobs by 2030, according to economists at Strategy&.

Green finance can also help accelerate the region’s economic diversification and job creation. If structured correctly, it can attract FDI, Jorge Camarate and Dr Shihab Elboral wrote in a report.

“Governments and businesses in the GCC devote significant attention and capital to environmental sustainability. However, until now the financial sector has not kept pace. Green finance, which takes into account the environmental impact of investments in addition to purely financial returns, remains relatively underdeveloped,” they said. The report estimates that the cumulative GDP contribution of major non-oil sectors (agriculture, food, construction, power, transport, water, and waste management) can reach $2 trillion through 2030, potentially adding over one million jobs

They noted that each GCC government should create a credible green sovereign wealth fund to engage with and attract international investors. The report 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 per cent of plastic and metal waste, resulting in significant waste. Increasing recycling rates in the GCC to a more achievable 40 per cent would create about 50,000 new jobs to support a $6 billion market,” the report says.

The report urged GCC governments 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.

To capitalise 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.

The UAE has emerged as a pioneer in sustainable finance within the GCC region. This is marked by the Dubai and Abu Dhabi Sustainable Finance Declarations in 2019 and 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 organisations 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.

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, promoting sustainable investments, supporting green projects, and encouraging sustainable financial institutions.

“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,” it said.

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, said the report.