GCC's Sustainable Finance Leap Fuels Economic Renewal

Sustainable finance has evolved from a specialised focus to a fundamental necessity, particularly in the Gulf Cooperation Council (GCC) region.

This shift is aligned with global objectives such as the Paris Agreement and the UN Sustainable Development Goals, positioning Gulf nations at the forefront of environmental and societal accountability.

"In a world where environmental and social accountability is paramount, sustainable finance has transitioned from a niche consideration to a mainstream imperative," states Shargiil Bashir, EVP and Group CSO at the First Abu Dhabi Bank (FAB).

The financial sector, as detailed in a report from KPMG Lower Gulf and FAB, is spearheading this transformation by mobilising capital to foster a low-carbon economy and diversify national revenue streams.

Rise of Renewable Energy Initiatives

Renewable energy is at the core of the GCC's sustainable finance story. Solar and wind projects are rapidly expanding throughout the region with significant initiatives such as the UAE aiming to boost its clean energy output to just under 28% of its total energy composition by 2023.

Similarly, Saudi Arabia is pushing forward with projects targeting an annual capacity of 20 gigawatts by 2024. This not only signifies a commitment towards decarbonisation but also underpins the critical role economic diversification plays in ensuring long-term sustainability.

Masdar, a pioneer in UAE's renewable energy sector, spotlighted this trend by floating a US$1bn green bond in 2023 to fund renewable initiatives.

Other areas such as energy-efficient infrastructure and water management are also garnering attention, with Saudi Arabia leading over 2,000 green building projects and the UAE implementing compulsory green building regulations aimed at reducing energy consumption and boosting infrastructure resilience.

Addressing water scarcity is crucial for the GCC. Investment in water conservation strategies including advancements in desalination technology and recycling systems are critical not only for sustainability but also for long-term economic safeguarding.

Barriers to Scaling Sustainable Finance

Despite significant advancements, notable challenges hinder further growth. Regulatory inconsistencies and a lack of standardised Environmental, Social, and Governance (ESG) metrics can impede progress.

According to the KPMG report, fragmented taxonomies and insufficient disclosure frameworks pose considerable obstacles for investors seeking transparent and comparable information, raising concerns about potential greenwashing.

Data challenges also stymie the landscape. ESG data, crucial for measuring impact, is often incomplete or unreliable.

Research by KPMG indicates that 65% of investment professionals consider data availability a pressing issue, limiting informed decision-making and scaling sustainable finance solutions. There’s also a pronounced skills gap within transition finance, a sector that funds the shift from high to low-carbon activities, revealing a need for substantial investment in training and capacity building across the financial sector.

Unlocking Economic and Social Opportunities

Despite the hurdles, sustainable finance holds remarkable potential for prompting economic progression. KPMG projects could add over $2tn to the GCC's GDP by 2030 through investments in sustainable infrastructure and renewable energy initiatives. Moreover, these investments are likely to create over one million green jobs, boosting employment and furthering economic diversity.

"With over 1 million jobs projected in the GCC from green investments by 2030, the youth play a pivotal role in driving this transformation," remarks Ali Al Dhahera, Managing Director and CEO of Tadweer Group. "Their innovation, energy, and leadership will be key in shaping industries like renewable energy, circular economy, and sustainable agriculture," he adds.

Small and medium-sized enterprises (SMEs) are essential to this growth yet often encounter difficulties in accessing sustainable finance due to limited credit histories and scarce collateral. Governments and financial institutions are addressing these barriers with initiatives like green credit guarantees and sustainability-linked loans to ensure an inclusive green transition.

What are KPMG and FAB's forward-looking strategies?

The joint report by KPMG and FAB points to several strategies to expedite the adoption of sustainable finance.

Among the recommendations is the creation of a unified GCC-wide sustainable investment taxonomy to enable consistent impact assessments and reinforce investor trust.

Additionally, policy incentives like tax breaks for green projects and prioritising ESG training within the financial sector are deemed crucial for private-sector participation and building necessary capacity.

The UAE is leading by example, integrating ESG principles comprehensively within its national agenda, setting a precedent for regional peers to follow.

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