Alena Dique and Tomas Valdes
Last October, His Majesty Sultan Haitham bin Tarik announced plans for Oman to achieve net-zero emissions by 2050. Through this announcement, Oman entered a regional sustainability landscape with two distinguishing features.
The first is that COP28 will be hosted by the UAE at the end of 2023, bookending the year for the Middle East nicely with Egypt having hosted COP27 in 2022. Second, Oman and its regional peers are outlining ambitions to become global leaders in finance and in sustainability. Blending sustainability and finance gives climate finance, which is taking off like a rocket into space.
Climate finance refers to the suite of products and services within the world of finance that supports climate change mitigation and adaptation efforts. Several mechanisms are leveraged for directing financial flows towards low-carbon, climate resilient development. Banks can provide funding for infrastructure projects that advance reusability and resource circularity. Carbon markets allow market participants to offset emissions by purchasing credits. But one mechanism in particular – green bonds – gives the region an opportunity to drive the dialogue by assuming a leadership role.
Globally, the first green bond was issued in 2007, and it wasn’t until 2017 that the Middle East saw its first issuance. And now, it isn’t only banks delving into debt issuance for sustainability purposes. The larger umbrella term ‘green’ financing saw the Middle East boom at an exponential rate, with sustainability-linked debt issuance in the region reaching an all-time high of $6.4bn in 2022
Emirati giants Majid Al Futtaim Group and Etihad Airways have issued green bonds in recent years to finance loans. In the past five months alone, Saudi Arabia’s Public Investment Fund has raised over $8 billion in two separate green bond issuances. Its latest issuance was more than six times oversubscribed.
Oman’s largest lender, Bank Muscat, issued the country’s first green loans worth $58 million in 2019 to finance solar panel installations on residential properties. Shortly after, the Central Bank of Oman issued guidelines for green financing, providing a framework for entities to capitalize in a standardized way on the broader effort to promote the transition to a low-carbon economy.
These regional developments come on the heels of a worldwide explosion in green bond issuance, from less than $100 billion in 2013 to close to $1 trillion in 2022. Internationally, leading investors such as BlackRock, Goldman Sachs, and Blackstone have said that ESG considerations are going to be key to their investments in the future. Regionally, the Abu Dhabi National Oil Company (ADNOC) is considering issuing its first-ever green bond, separately from the $3-5 billion it plans to raise from conventional fixed income securities.
The future of green sukuks in the Middle East looks promising, too. Countries in the region, including Oman, are leveraging the potential of green bonds that enables fundraising for environmentally sustainable projects while adhering to Islamic financial principles that don’t involve interest accumulation. They therefore attract more socially responsible investors to the region and drive further capital towards ESG initiatives.
Moving towards COP28 this year, we can expect to see continued growth in the issuance of these instruments to finance a wide array of green projects, from renewable energy to sustainable infrastructure and waste management. Although the Middle Eastern private sector has increased its involvement in green financing in recent years, governments must overcome a number of key challenges by clarifying regulations in the space of green deposits, green sukuks, green loans, and green insurance to harmonize sustainable finance rules and to support a possible future of low carbon-based financial and/or governing mechanisms. International standards in this area could accelerate progress and support local governments to facilitate green financing in the Middle East and North Africa region.
An optimistic regional outlook deems the creation of a robust low-carbon market as a source of structured revenue through sale of carbon credits; however, diving deeper into the establishment of these markets requires significant investments in infrastructure and regulatory frameworks – the question is: will Oman and its regional peers emerge as leaders in climate finance as we approach COP28 or will they feel the heat of limited emissions metrics, oil price volatility, lack of skilled expertise, and increasing ESG competition?
About the authors
Alena Dique is a Sustainable Development and Energy Transition consultant at Gulf Intelligence in Oman and UAE. With a degree in Quantitative Statistics, she holds a Scholastic Award and MBA from the University of Wales, she has been recognized as one of the Top 100 Successful Women in Oman and amongst the Top 10 National Gamechangers of the Sultanate. Alena is also the certified Oman coordinator at the United Nations Conference on Trade and Development (UNCTAD) Youth Network.
[Email: dique.alena@gmail.com]
Tomas Valdes is a Dubai-based strategic advisor who delivers thought leadership solutions on the full value chain of the regional energy industry. He was a United States Fulbright Grant Recipient to the United Arab Emirates where he researched the UAE government’s experience navigating the country through the Financial Crisis and COVID-19 pandemic. Before the UAE, he worked in asset management in the United States and Brazil, implementing scalable growth in assets under management. A native of the USA, Tomas holds an MBA from Georgetown University and a BA from Tufts University.
[Email: TomasValdesArenas@gmail.com]
