How Middle East businesses can rise to the net-zero challenge

Six years ago, representatives from almost every nation around the world met in Paris and vowed to work together to combat the looming threat of climate change. Since then, the transition to net zero has undoubtedly become a non-negotiable priority for governments and organisations alike.

As we begin to emerge from the immediate impacts of the Covid-19 pandemic, businesses have a unique opportunity to accelerate their net-zero targets. The fact is the Covid-19 virus has been a wake-up call on the threats triggered by humanity’s impact on nature, and the necessity to integrate these threats to business risk management processes. This is why banks and financial institutions are paying more attention to the risks of inaction on climate change.

Given the scale of the net-zero challenge, banks and FI’s are in a position to play a key role in accelerating the transition to a low carbon economy by financing activities that are aligned with the Paris Agreement.

The net-zero challenge is especially evident in Africa and the Middle East, who are amongst the most vulnerable regions to climate change and most in need of funding to ensure that economic development can continue while the climate crisis is addressed.

In a recent study published by Standard Chartered, we spoke to senior business leaders in the region to understand some of the roadblocks they are facing in playing their part in reducing carbon emissions.

Our results revealed that support for the Paris Agreement is lower amongst companies in the Middle East, with just 35 per cent fully supporting the aims of the agreement, and more than half of companies requiring high levels of investment to fulfill this transition. Furthermore, a major challenge for Middle East corporates is the economic impact of Covid-19 which played a factor in delaying their net-zero transitions.

Business leaders in the region have also expressed their views that they are looking to delay significant action to after 2030. Some 20 per cent said their companies will make the most progress between 2030 and 2040, while a further 40 per cent said they will take most action between 2040 and 2050.

Although these numbers are alarming, as delaying the energy transition leaves the region in danger of missing the Paris Agreement; there is time to cross the finish line. We are witnessing countries, like the UAE, leading in the introduction of sustainability-driven frameworks and innovations in the region, such as the UAE’s Masdar City and the Mohammed bin Rashid Al Maktoum Solar Park, the world’s largest single-cite solar park. However, much is to be done if the region is to realise a sustainable future.

In order to get through some of these challenges, net-zero could be made more commercially viable by a combination of incentives and policies such as global carbon tax policy and the introduction of standardised measurement frameworks. Building on a net-zero ambition, organisations will have to adapt and embed their energy transition goals into their operating model and corporate DNA. This will require accountability and commitment by prioritising transparency and a drive towards innovation-led solutions that ultimately service our economies and our planet.

Banks and financial institutions (FIs), specifically, are instrumental in financing developing countries ability to deploy sustainable solutions.

Innovative financing models, such as blended finance, should be utilised as key vehicles to incentivise and catalyse private sector contribution to bridge this funding gap. Blended finance allows private sector capital to be funneled towards projects that are of societal benefit, also offers a valuable opportunity to attract philanthropic funds’ participation through its unique layered profile. Short-term financing, although necessary, will not suffice entirely. Banks and FIs must also integrate sustainable considerations throughout their long-term growth strategies and play a hands-on role in facilitating sustainable projects.

A successful net-zero transition must be just, leaving no nation, region or community behind and, despite the hurdles, action needs to be swift. To meet the 2050 goal, we must act now, and we must act together: companies, consumers, governments, regulators and the finance industry must collaborate to develop sustainable solutions, technologies and infrastructure.

Mohamed Salama is the regional head of corporate, commercial and institutional banking, Middle East and North Africa at Standard Chartered