The Arab Federation of Capital Markets (AFCM) has reported that financial markets are crucial to supporting the green transition. By ensuring transparency, clear information and fair market practices, the carbon market will become an ideal environment that promotes the emergence of green projects and frictionless carbon trading.
The association emphasized the need for Middle Eastern countries to take advantage of technological advances and improve infrastructure to better assess and manage environmental impacts. This requires continued collaboration between the region's financial institutions and technology companies.
Green initiatives allow companies to issue carbon certificates that serve a dual purpose. Not only do they confirm the company's efforts to reduce emissions, but they also offer the opportunity to trade these certificates with other companies.
Middle Eastern countries are actively pursuing a green transition and reducing carbon emissions in line with the Paris Climate Agreement. Notable initiatives include the Dubai Financial Market's carbon trading pilot program and the Egyptian Stock Exchange's creation of Africa's first voluntary carbon market.
The association also acknowledged Saudi Arabia's implementation of systems to offset greenhouse gas emissions, highlighting the measures governments must take, including legislative changes, to achieve these goals and how technology can support this process.
The Gulf Cooperation Council has issued guidelines to promote green financing and investments, which are becoming increasingly popular in the region. In 2022, green investments in green bonds and sukuk peaked at $8.5 billion.
In Dubai, a consortium of financial institutions is leading green finance efforts with the aim of aligning financial markets with sustainability standards in terms of environmental, social and governance aspects. The aim of this initiative is to create transparent markets that protect stakeholders and prevent greenwashing.
Internationally, stock exchanges are taking similar measures. The London Stock Exchange is facilitating voluntary carbon trading, while the Tokyo Stock Exchange plans to introduce international credits to complement existing “J-Credits”. The Indonesian stock exchange has also issued local CO2 certificates.
The global market for green bonds, which finance environmentally friendly projects, has grown significantly and is expected to reach over $480 billion in issuance in 2022.
The United Nations' Net Zero Asset Owners Alliance, launched in 2019, is made up of major investors who want to transform their portfolios to net-zero emissions by 2050 and manage assets worth around $9.5 trillion.
In addition, Arab countries such as Saudi Arabia and the United Arab Emirates are investing significantly in renewable energy. The United Arab Emirates, for example, has pledged to invest around $163 billion in clean energy projects by 2050.
The report concludes that the path to achieving zero-carbon emissions in the region requires a shared commitment from all stakeholders in society, including governments, financial institutions and businesses. Collaboration between these entities is critical to achieving the Sustainable Development Goals, prioritizing activities to address climate change risks due to their serious global impacts and requiring urgent solutions.
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