COP28's Impact on Middle East Industry Sustainability Strategies
The UN Climate Change Conference known as COP 28 held in Dubai, United Arab Emirates, was the largest gathering of its kind.
It attracted approximately 85,000 attendees, including over 150 Heads of State and Government, who represented national delegations, civil society, businesses, Indigenous Peoples, youth, philanthropic organisations, and international bodies.
It was a historic one as for the first time the conference acknowledged the role of fossil fuels in the text decision at a UN climate summit for the first time. Countries were urged to shift away from fossil fuels, representing a crucial advancement in global climate action since the 2015 Paris agreement.
This is significant considering that COP28 was hosted by one of the top 10 oil producing nations and due to its proximity had other oil producing nations at the table confronting an issue that many thought would be sensitive.
But being that this is a global effort, it became increasingly evident that the world is not transitioning quickly enough to meet the 1.5˚C target set in Paris. Research highlights the necessity of achieving four interconnected objectives for a successful net-zero transition: reducing emissions, ensuring affordability, maintaining reliability, and enhancing industrial competitiveness, all of which was addressed at COP28
As COP28 concluded, there was a sense of encouragement regarding the progress made towards aggressive sustainable strategies. However, it is widely recognized that more ambitious efforts are needed to effectively limit warming to 1.5˚C.
The focus must now shift towards translating commitments into tangible actions that can deliver measurable results. So, what strategies could be implemented towards achieving the conference's goals?
Decarbonization and Adoption of Renewable Energy
During the COP event, 50 companies, representing over 40% of the world's oil and gas production, endorsed the Oil and Gas Decarbonization Charter. These companies pledged to achieve net-zero operations by 2050 and minimize methane emissions in upstream operations by 2030, eliminate routine flaring by 2030, and enhance transparency in reporting emissions.
Take ADNOC, for example, who announced that carbon management, electrification, energy efficiency and methane reduction are at the core of their strategy to achieve a 25% reduction in greenhouse gas intensity by 2030 and have pledged to be net-zero by 2045.
However, in the Middle East, even prior to COP28 businesses have already taken steps to reduce their carbon emissions. Take solar energy for example, from May 2022 to May 2023, the Middle Eastern nations experienced a 57% surge in their solar and wind energy capacities.
Specifically, investments in solar power are expected to triple between 2022 and 2027 compared to the preceding five years. Solar power stands out as the primary renewable energy technology, making up 92.7% of the overall installed renewable capacity in 2022.
The region boasts some of the most affordable solar photovoltaic costs worldwide. Specifically, in the UAE, solar energy costs are nearly 50% lower than the global average.
Companies like Yellow Door Energy, the leading sustainable energy partner for businesses, are reaping the benefits of this and rapidly expanding into new countries with over US$ 1 billion in projects across the region.
Net-Zero Financial Investment
While there was an increased pressure on the Oil and Gas sector to make firm commitments towards reducing their carbon emissions this has not been reflected equally across all industries.
A report by World Economic Forum and Bain & Co indicated that of the approximately 200 companies in MENA's nine largest economies only 12% of these businesses have pledged to establish net-zero targets consistent with both national and global objectives. The costs of transitioning towards the goal of net-zero is an underlying cause.
The considerable investment required by these nations to support the shift towards renewable energy and meet their national net-zero objectives is substantial. For instance, the UAE has dedicated US$ 163 billion to fulfill its net-zero commitments. However, an assessment conducted by Standard Chartered, independent of the UAE, estimates the total required investment at US$ 680 billion, highlighting a shortfall of over US$ 500 billion.
Although the report did detail signs of progress in the actions of some of the largest companies in the region such as Majid Al Futtaim, ADNOC and Etihad Airways, Kuwaiti logistics firm Agility, Saudi solar company ACWA Power and Saudi industrial and chemicals giant Sabic as examples.
But even these firms had to put considerable financing to achieve their goal. Majid Al Futtaim in 2021 signed its inaugural US$1.5 billion Sustainability-Linked Loan (SLL), a financial instrument secured primarily on ESG related performance. SABIC invested US$1.3 billion for the second phase in its energy transition after the company saw a 10% drop in carbon emissions during the US$1 billion transition phase.
This allowed firms to roll out measures to reduce greenhouse gas emissions, increasing use of renewable energy and scaling up nascent low-carbon technologies, such as green hydrogen and sustainable aviation fuel.
During COP28, over US$80 billion in climate finance pledges were made by nations, development banks, private entities, and philanthropic organisations.
Although this funding falls short of the required amount, there are tangible prospects for leveraging this committed investment to attract additional financing for the transition, including through innovative finance mechanisms, McKinsey reports.
COP28 witnessed shifts towards expanding blended-finance models such as Alterra which have the potential to unlock investments previously unappealing to private capital. The objective is for these structures to attract more private capital into climate finance efforts, fostering a collaborative and sustainable financial ecosystem.
Corporate Sustainability Practices
Being environmentally conscious in every business decision made will play a key role in achieving the goals set out by COP28. For example, when it comes to occupying a building, Knight Frank reports that businesses with key ESG strategies are likely to influence their real estate choices and have a high appetite to pay premiums for ESG-rated offices.
The market's movement towards new Grade A developments continues to surge, with domestic and international occupiers actively seeking efficiently managed, ESG-accredited, and well-maintained offices. ESG considerations are a relatively new concept in the Middle East, but there are indications that the market is aligning with the global sustainability agenda.
This is reflected in an increasing interest in sustainable buildings, a stronger emphasis on energy conservation, and the adoption of environmentally friendly practices in property development, operations, and maintenance.
The results of COP28 have impacted regulatory frameworks and compliance standards in the Middle East's industrial sector. Governments are implementing strict environmental regulations, emission standards, and sustainability reporting requirements to align with international agreements and commitments established at COP summits.
This change has prompted industries to adopt cleaner production techniques, invest in pollution control measures, and prioritise sustainability in their operations.
These regulatory measures not only promote environmental responsibility but also cultivate a culture of corporate accountability across all businesses.
Additionally, discussions at COP28 have underscored the significance of transparency and disclosure concerning environmental impact and sustainability performance. Consequently, numerous industries in the Middle East are now releasing annual sustainability reports.
There remains a significant journey ahead in achieving these objectives, requiring collaboration across all sectors and industries with varying strategies. However, substantial investments, transparent practices, and tangible benefits will be pivotal in shaping a greener and more sustainable future.
Read more: How Will COP28 Change the Middle East?
