Emerging Markets Need Private Investors for Projects to Meet Climate Goals

A new paper from the Tony Blair Institute (TBI) reveals an alarming shortage of climate-responsive projects in emerging markets and developing countries, which potentially poses a threat to global progress towards net-zero targets. It shows that in emerging markets and developing countries (EMDCs), the number of climate-responsive projects funded by private sources of capital has been decreasing by approximately 10 per cent per year since 2015. Climate-finance targets require these projects to increase by approximately 30 per cent by 2030.

The UAE's presidency of COP28 has highlighted 'improving climate finance' as one of its four key focus areas for the conference, alongside speeding up the transition to clean energy, promoting full inclusivity, and addressing impacts on lives and livelihoods.

Private sector investment

In the past eight years, investment in these projects has dropped at an average annual rate of 11 per cent, with project pipelines following the same trend. In contrast, Organisation for Economic Development and Cooperation (OECD) countries saw their renewable-energy investments increase at an average annual rate of 4 per cent.

To honour the Paris Agreement by 2030 and limit the devastating impact of global temperature rise, TBI estimates the required global annual climate spend from the public sector, international financial institutions (IFIs) and private sources combined ranges from $4.5 to $6.9 trillion, which is seven to 11 times larger than the current annual spend of $630 billion.

But honouring climate goals will require targeted funding in countries that face a disproportionate climate-change burden, including EMDCs, rather than an even distribution of finances across the globe. To ensure these countries are able to keep pace with global efforts, EMDCs should receive $2.4 trillion annually, equivalent to 30 to 50 per cent of total global spending.

According to TBI’s analysis of current sources of finance, approximately $780 billion of the $2.4 trillion annual funding that should be directed to EMDCs must be supplied by international sources of private finance, in addition to funding from public sources and IFIs. At present, EMDCs receive only $85 billion to $114 billion from international sources of private investment. To close the gap and provide secure allocation for new investments, an increase of seven to nine times the current pipeline of climate-responsive projects is required.

Middle East perspective

Rana Hajirasouli, Founder of The Surpluss, pointed out that “we should not underestimate the power of both public and private investments”. She added, “Whilst public funds can attract R&D and experts to the knowledge economy for the transition, private funds must be allocated appropriately. Our climate-tech investment landscape is quite unilateral and does not take into consideration emission relatives. A large chunk of investments are allocated to EVs and similar infrastructure (50 percent according to a PwC report), whereas theese emit only 15 percent. The missing puzzle piece here is to find the right balance to fund industry-related infrastructure and digital projects which can scale the green transition, and currently, resource management and industry solutions are dramatically underfunded.”

The paper states that emerging EMDCs have ‘an urgent need to build investable project pipelines that attract private investments, as well as public-private partnership investments, in climate-related sectors’, and that they will need approximately 3,200 new investable projects welcoming private foreign investment in order to meet climate goals.

Dr. Sudhir Sharma, CEO of Green Boom, feels that the emphasis on channelling financial resources towards a just transition to net zero while acknowledging the distinctive requirements of EMDCs is critical. In the context of the Middle East, he felt that considerable strides have been made, notably in initiatives integrating renewable energy and sustainable practices. Countries like the United Arab Emirates, Qatar, and Saudi Arabia, have committed to large-scale renewable energy ventures, have increasingly embraced renewable energy projects, and alternative measures including enhanced carbon capture and related technologies to reduce carbon emissions.

Facilitating the energy shift in EMDCs, along with aiding countries most affected by climate change, is central to the ambitions of the COP28 Presidency.

Sharma added, “To truly fortify the region's path toward sustainability and climate resilience, more comprehensive efforts are imperative. There is a need for significant policy updates and enforcement, and investment from the oil and gas, government, and private sector. In essence, while the Middle East has embarked on a promising trajectory, concerted actions are necessary to bolster climate finance strategies that prioritize and cater to the unique needs of the region's developing economies. Collaborative, targeted investments aligned with sectors like oil and gas require immediate attention are pivotal to truly catalysing a just transition and ensuring a sustainable future for the Middle East.”

The Society of Sustainability and Green Materials (SSGM), a non-profit organization, officially launched in the UAE to raise awareness and be a leading edge in sustainability, green materials and circular economy. As a membership driven organization, the Society has highly professional corporate, expert individual members and partners representing all sectors working in sustainability and material industry.

Commenting on the report by TBI, Dr Ali Al Jassim, Chairman of SSGM, said, “Getting materials in the right green path is a global challenge. One of the objectives of the Society is to act as a hub that contributes to the development of sustainability and green materials industry in the UAE and the region, to ensure meeting the CO2 emissions targets. Through raising the local and regional awareness, in addition to providing appropriate guidance for standardizing the assessment processes, the Society is aiming to support stakeholders and decision makers to ensure proper sustainable development of the materials’ industry.”