The United Nations Convention to Combat Desertification states that around 250 million people are affected by desertification. By 2045, it is estimated that up to 135 million people may be displaced due to that process. Taking on a proactive leadership role, the MENA region is driving the climate transition for its benefit and that of the global community.
The United Nations Framework Convention on Climate Change has central decision-making bodies known as the Conference of Parties (COP) summits. Recently, Middle Eastern countries led both recent COPs- COP27 and COP28- in Egypt and UAE, respectively. It resulted in the groundbreaking ‘UAE Consensus’ agreement, where nearly every country committed to transitioning away from fossil fuels. This marked the first time such a consensus had been reached in the history of international climate negotiations.
The UAE Consensus agreement also included the “global stocktake”, a comprehensive review of actions needed to meet the goals of the Paris Agreement. This review focused on the urgent need for a swift and equitable transition supported by significant emissions cuts and increased climate finance.
Development Finance Institutions (DFIs) have catalysed climate action in the Middle East and GCC. A recent Boston Consulting Group and KfW report, ‘The Climate Financing Roadmap, ‘ shows that DFIs are central to mobilising private capital and committing their resources to climate initiatives. They play a vital role in closing the funding gap for projects tackling climate change, including sustainable energy, climate adaptation, and resilience initiatives.
The crucial role of DFIs in climate finance
In the finance ecosystem of the GCC, Development Finance Institutions take the lead as the orchestrators, while multiple parties are involved in financing the transition toward addressing climate change. DFIs are crucial in coordinating and directing these efforts, ensuring adequate financing for climate-related projects in the region. Following the GCC’s heightened commitment to climate diplomacy and finance, DFIs have become a cornerstone in collectively navigating and connecting all ecosystem players to act towards a more sustainable and resilient future.
“DFIs increasingly turn climate commitments into actionable plans”
GCC’s DFIs have historically been crucial in financing infrastructure, industrial, and social development projects, contributing to regional and international development efforts. Recently, there has been a significant shift towards projects promoting climate resilience, adaptation, and mitigation economically and environmentally. This includes investments in renewable energy, such as solar and wind power, sustainable urban development, and green technologies, marking a new era of development finance focused on environmental sustainability.
DFI leadership in climate finance initiative
GCC’s DFIs are transforming the development finance landscape by effectively responding to climate change and promoting sustainable development. Selected examples are:
- The Arab Fund for Economic and Social Development launched the Arab Fund Green Projects Program in 2022, aimed at mitigating the impact of climate change across Arab countries. This comprehensive programme includes providing loans for green projects at low interest rates, offering grants for feasibility studies and designs, launching competitions to finance innovative small green projects, and organising an Arab Conference for Cooperation on Climate Change to enhance regional cooperation.
- The Abu Dhabi Fund for Development (ADFD) has made significant strides by financing 73 renewable energy projects, with a total investment exceeding Dh 4.7 billion. These projects, spread across 52 countries, leverage hydro, solar, and wind energy to meet the growing demand for safe and sustainable energy. By improving the economy and quality of life in developing countries, these initiatives also contribute to reducing CO2 emissions.
- The Saudi Fund for Development (SFD) focuses on bolstering the agricultural sector and enhancing food security in developing countries. It addresses critical climate-related challenges such as droughts, floods, the spread of agricultural pests, and the misuse of modern technologies. Since its establishment in 1974, SFD has allocated over SAR 70 billion to development initiatives worldwide, primarily by providing soft loans and financing projects in the least developed and low-income countries. To date, it has signed over 737 agreements with 84 different countries.
Empowering climate finance: DFI increasing role and importance.
DFIs play a crucial role in advancing climate adaptation and decarbonisation efforts. By leveraging blended finance, which combines public and private funds, DFIs attract private capital to invest in climate-friendly projects. They also address investor concerns by offering guarantees and insurance, particularly in emerging markets.
The GCC showcases the effective use of innovative financing tools, such as green bonds and climate funds, to channel investments toward projects with positive environmental impact. These efforts underscore a commitment to supporting climate-friendly projects through blended finance, which plays a crucial role in attracting private capital to significant initiatives such as solar power plants. Similarly, there’s a global effort to combine public and private funds to accelerate climate adaptation and mitigation projects on a larger scale.
In addition to financing, GCC DFIs establish strategic partnerships with various stakeholders, including international organisations, governments, and the private sector, to advocate for policy frameworks that encourage investment in green technologies. They also play a crucial role in capacity building and knowledge sharing, enhancing investor confidence in climate projects.
DFIs facilitate market access, ensuring that private investors can connect with viable climate projects. At the same time, their commitment to transparency and impact measurement provides the necessary assurance regarding the projects’ effectiveness and environmental impact.
DFIs increasingly turn climate commitments into actionable plans by mobilising private sector funds and bringing stakeholders together to address financial, policy, and incentive gaps in climate adaptation and mitigation efforts. They act as facilitators, directing private investment toward the global cause of climate action. The journey ahead is crucial, and DFIs are taking bold measures to address the growing urgency of climate change.
