Green finance is an untapped opportunity for the Middle East. The projects that hold strong roots in the environmental, social, and governance fields have gotten investors’ eyeballs across the globe. GCC countries can excel at these projects since they maintain plentiful and low-cost renewable energy sources. This is why investors are heavily investing in such projects.
Governments of the Gulf region can generate $2 trillion in cumulative economic productivity. Further, they can produce over one million jobs by 2030 through the implementation of the proper green financing frameworks and procedures. Governments must emphasize the four areas to facilitate the shift of the country’s economy away from fossil fuel-based businesses. Continue reading to explore those four areas for GCC governments’ consideration.
Green Financing as a Financial Opportunity to Fund Ecological Projects
Green financing is a structured financial instrument designed specifically to finance projects that promote ecosystems, sustainability, and the environment. All renewable energy projects, pollution prevention initiatives, energy efficiency initiatives, and corporate sustainability initiatives are typically financed through green financing. A report by the World Economic Forum estimates that the market for green bonds will grow to $2.36 trillion by 2023.
A Four Point Strategic Plan for GCC Governments
The move toward sustainability has already begun in the Gulf states with the governments’ initiative to boost investment. Supporting these sustainability-linked initiatives and green projects with a differentiated approach while capturing the highest portion of the economic reward is a challenging task. GCC governments should focus on the following four significant concerns.
1. Supporting Sustainable Environmental Practices
Gulf governments need to legislate sustainable policies to ensure all industries promote sustainable environmental practices. For this purpose, governments either can structure a market mechanism or incentives for consuming renewable energy. Companies and industries can determine the actual cost of their activities through market mechanisms such as charges for carbon and plastic. Further, the regulatory standards should be updated to prevent economic distortion and ensure the economy is adopting technological advancements.
2. Establishing A Sovereign Wealth Fund for Green financing Projects
A green sovereign wealth fund is needed to engage and attract investors from around the globe. To provide a sustainable fiscal framework for the region, the green sovereign wealth fund should be freed from the region’s legacy mindset. This mindset views sustainability as a burden rather than as a potential. Setting up a wealth fund unlocks high investment yields, expedites accomplishing environmental goals, encourages job opportunities, and prevents funds from getting locked into public investment entities only.
3. Strengthening Capital Markets
Another priority to be focused on by the GCC region is strengthening their capital markets. The existing framework for green financing is constrained by the undeveloped financial markets. By strengthening these markets, investors will be able to take advantage of easy exits. It will also make GCC funds more accessible to investors.
4. Developing Standardized and Transparent Reporting Mechanisms
Investors demand a transparent reporting system to analyze the quality and quantity of information delivered thus GCC region must build comprehensive Green finance reporting methods. However, establishing transparent sustainability criteria for projects worldwide is a tricky problem. Governments can maintain credibility by using systematic regulation and validation frameworks. Therefore, international investors will be able to objectively evaluate the outcomes of sustainability initiatives in the GCC region.
