The introduction of green finance in the GCC countries can have significant economic benefits, including unlocking up to $2 trillion in GDP contribution and creating over one million jobs by 2030. Economists at Strategy& have highlighted the importance of developing the right structure and mechanisms for green finance in the region. Green finance can also play a crucial role in accelerating economic diversification and job creation, as well as attracting foreign direct investment (FDI) if structured correctly. Currently, the financial sector in the GCC has not fully embraced green finance, which takes into account the environmental impact of investments alongside financial returns. The report suggests that by focusing on major non-oil sectors like agriculture, food, construction, power, transport, water, and waste management, the region could see significant growth and job creation.
The report recommends that each GCC government establishes a credible green sovereign wealth fund to engage with and attract international investors. It also suggests opening up the region’s capital markets to accelerate investment in sustainable projects. Currently, GCC countries only recycle, reuse, or recover about 10% of plastic and metal waste, leading to significant waste. By increasing recycling rates to 40%, the region could create about 50,000 new jobs and support a $6 billion market. The report emphasizes the need for GCC governments to continue opening up and strengthening capital markets to facilitate the exit of successful investments and access funds held by high-net-worth individuals and families.
To capitalize on the potential of green finance, the report recommends that GCC governments focus on 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, with initiatives such as the Dubai and Abu Dhabi Sustainable Finance Declarations and the UAE’s first guiding principles on sustainable finance. The UAE Sustainable Finance Framework 2021-2031 sets a common national agenda for sustainable finance, while entities like ADGM and DIFC collaborate with global organizations to provide training programs for finance professionals.
The UAE government has made significant commitments to sustainable finance, including a net-zero emission objective and mandating ESG reporting from publicly traded corporations. Abu Dhabi’s sovereign wealth fund, Mubadala, has established an independent ESG business, and Dubai’s Emirates NBD raised $1.75 billion in the Gulf region’s first sustainability-linked loan. Masdar Green is issuing green bonds to facilitate sustainable asset development for Masdar City’s future growth. The financial sector in the GCC countries plays a crucial role in contributing to GDP, presenting an opportunity to accelerate the adoption of sustainable finance practices.
The GCC countries have made progress in developing sustainable finance frameworks, promoting sustainable investments, supporting green projects, and encouraging sustainable financial institutions. Efforts include the development of sustainable cities powered by renewable energy like NEOM in Saudi Arabia, carbon-neutral urban development projects like Masdar City in the UAE, and the diversification of energy sources to reduce the carbon footprint across all GCC nations. The popularity of green finance is increasing in the region, 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 $605 million in 2021. This shows the growing interest and opportunities in green finance within the GCC countries.
