The green and sustainable debt market should be the driving force of the GCC’s net zero agenda, according to a recently published report.
The report from Boston Consulting Group (BCG), titled ‘Financing a Net-Zero Middle East’, states that the issuance of green bonds has grown rapidly in the region despite a lack of regulation.
For example, in 2021, issuance rose by four times the previous year.
At the same time, there is a growing need for financing and investment in technologies and services focused on decarbonisation and climate transition if companies in the region are to meet their net-zero targets.
However, according to BCG, the absence of regulatory imperatives in the region means many companies do not feel sufficiently compelled to either address their own sustainability challenges or invest in sustainable ventures.
This is where the burgeoning green bond market comes in, according to BCG.
"Regulators and policymakers could address this challenge by establishing carbon prices that adequately represent the cost of greenhouse gases and are aligned with international carbon price levels,” stated Shelly Trench, managing director and partner at BCG and co-author of the report.
“In addition, they could create financial and other incentives to support decarbonisation and develop environmental and industrial policies that align with climate objectives," stated Trench.
The report also makes three recommendations for GCC’s banks and funds in order to develop the green bond and climate financing market - provide financing for non-bankable green projects with lower risk-adjusted returns or higher investment risks; develop risk mitigation instruments to improve risk-adjusted returns for private capital investment; and work with policymakers and regulators on the reforms needed to scale up climate finance.
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