As global leaders convened in Egypt for the UN COP27 to discuss the urgency of climate change, the Middle East’s climate credentials were in focus. The annual conference, now in its 27th edition, received representatives from around 190 countries. It was an opportunity for countries to negotiate climate action and reflect on how carbon-reduction targets are to be implemented in the process of energy transition.  

In the lead-up to the conference, the Gulf states pledged ambitious targets in their transition to achieving net zero carbon emissions. The UAE has committed to net zero by 2050 with the aim of reducing CO2 emissions by 70 per cent within the same timeframe. Saudi Arabia has also committed to a net zero target of 2060, with a pledge to achieving 50 per cent of renewable energy in its energy mix by 2030.

Egypt updated its nationally determined contributions in July 2022, setting quantified goals for reducing emissions by 2030, but these were conditional on getting $246 billion in international support. Bahrain was not far behind with a net zero emissions commitment for 2060 and pledges to reduce emissions by 30 per cent by 2035, including investing in carbon removal solutions.

While most Middle East countries have committed to promising targets in line with global expectations, it will be interesting to see how these pledges are put into action in the next few years with strategic planning and targeted investments.

Countries in the Middle East and North Africa (MENA) region are enacting a wave of reforms to respond to climate-change challenges in the form of robust environment, social, and governance (ESG) policies. Mandatory ESG reporting is already underway in the UAE, where public joint stock companies listed on the Abu Dhabi Securities Exchange or Dubai Financial Market are required to publish an annual sustainability report.

Similarly, the Saudi Exchange (Tadawul) has put in place its own set of ESG disclosure guidelines requiring listed companies to report on their sustainable practices. Egypt has followed suit by requiring companies listed on the Egyptian Stock Exchange to provide disclosures based on certain sustainability and climate-change markers. These regulatory requirements have been crucial in bringing ESG to the forefront of corporate governance.

Regulatory reforms are being supplemented by targeted investments in renewable and infrastructure projects aimed at building a more balanced economy and creating strategic opportunities for public-private partnerships. The UAE and Saudi Arabia have committed significant investments to climate-change initiatives to support their net zero transition. The UAE’s state utility the Dubai Electricity and Water Authority reached a milestone with its installed renewable energy capacity reaching 1,300 MW, with the inauguration of a new 300 MW solar park.

The Abu Dhabi National Oil Company (ADNOC) and Abu Dhabi National Energy Company closed a $3.8 billion high-voltage sub-sea transmission network last month that is expected to reduce the carbon footprint of the ADNOC’s offshore operations by more than 30 per cent. Saudi Arabia has also shown promise with $18 billion renewable projects in the pipeline, with around $13 billion worth of investments in renewable energy already at or close to tendering stage.

Sustainable finance transactions have also been on the rise, with Bahrain’s state oil company, the Oil and Gas Holding Company BSC, refinancing a $2.2 billion sustainability-linked corporate finance facility earlier this year. The Saudi National Bank, Saudi Arabia’s largest commercial bank, issued $750 million in its debut sustainable sukuk (Islamic finance) bonds, and Dubai’s Emirates NBD raised the Gulf region’s first sustainability linked loan last year to the tune of $1.75 billion.

We are also seeing the private sector make significant progress in the sustainability space with a marked shift in the corporate paradigm where sustainability is seen as being instrumental in long-term value creation. As governments pledge globally to net zero targets, sustainability commitments are being supplemented with robust regulations and investment opportunities that call on the private sector to be a part of the transition.

The COP27 opened on 6 November with its president, Egyptian Foreign Minister Sameh Shoukri, noting that “it is inherent on us all… to demonstrate our recognition of the magnitude of the challenges we face and our steadfast resolve to overcome them.” The call for global action to tackle the climate-change crisis requires governments and businesses to collaborate with a view to achieving meaningful milestones in the sustainability space.

While countries are looking to put in place more stringent measures in the form of mandatory disclosures for sustainability reporting, there is a general lack of consistency in ESG ratings. Development of accurate and reliable methods of estimating ESG performance will assist in creating products and services that meet investor demands, while ensuring that the sustainability agenda is embedded in a company’s strategy and operations. Businesses will also benefit from a comprehensive and harmonised framework with detailed policies and implementation plans that reflect how the net zero targets are to be achieved and ensure the risk of greenwashing is tackled effectively.

The last few years have seen the worst effects of the climate crisis, and these, coupled with a global pandemic, have made it imperative for the sustainability agenda to be brought to centre stage for all stakeholders to consider, review, and incorporate in their journey to net zero.  

The writer is managing associate at the law firm Linklaters LLP based in Dubai.

*A version of this article appears in print in the 17 November, 2022 edition of Al-Ahram Weekly.