UK and Saudi Arabia plant seed for closer ties on green finance

December 23, 2022, 6:02 AM

The memorandum of understanding was signed during a meeting between Saudi finance minister Mohammed Al-Jadaan and his UK counterpart Jeremy Hunt in London

Deal enhances financial services cooperation for sustainable projects
PIF’s issuance of green bonds supports Saudi’s environmental goals
Green finance remains relatively underdeveloped

Saudi Arabia has signed an agreement with the UK to foster greater cooperation on green finance as the kingdom looks increasingly at ethical funding for its transformative giga-projects.

Jeremy Hunt, the UK’s chancellor of the exchequer, and Mohammed Al-Jadaan, the Saudi minister of finance, met on Tuesday in London to sign a memorandum of understanding on financial services cooperation, which aims to enhance cross-border trade and spur deeper collaboration on priority issues such as sustainable finance.

The deal builds on a green finance roundtable held at the Future Investment Initiative summit in Riyadh last year by the UK and Saudi Arabia.

The event sought to ensure continued dialogue between private sector participants and public sector policy makers to understand the challenges of the environmental, social and governance ecosystem and facilitate investment flows.

Green finance is essentially a loan or investment that’s used to support environmentally friendly activities.

Saudi Arabia has committed to a number of ambitious climate goals. It aims to reduce carbon emissions by 278 million tonnes a year by 2030, as well as increase its renewable energy generation capacity by 50 percent.

Energy giant Saudi Aramco has also committed to net zero operational emissions by 2050, with the country itself aiming for net zero by 2060.

According to Strategy&, green finance represents a significant, and currently untapped, opportunity for GCC countries.

Its analysts said that by 2030 green finance could unlock up to $2 trillion in cumulative GDP contribution, creating more than 1 million jobs and encouraging foreign direct investment.

Analysts added that while governments and businesses in the GCC are devoting significant attention and capital to environmental sustainability, the financial sector “has not kept pace”.

Green finance, which takes into account the environmental impact of investments in addition to purely financial returns, remains relatively underdeveloped, Strategy& noted.

In October Saudi Arabia’s Public Investment Fund raised $3 billion in its first foray into the debt capital markets to become the first sovereign wealth fund to issue green bonds.

The bond was more than eight times oversubscribed, with orders exceeding $24 billion.

The issuance forms part of PIF initiatives to support the kingdom’s green agenda and follows previous announcements such as the launch of the Mena Voluntary Carbon Market.

In February PIF laid out plans for raising green debt with the publication of its green finance framework that will allow it to tap world markets to issue debt linked to environmentally friendly goals.

Net proceeds from such debt sales target eligible projects, which include renewable energy, energy efficiency, sustainable water management, clean transport, green buildings and pollution prevention.

Fahad AlSaif, head of PIF’s global capital finance division, said at the time that the issuance “reflects PIF’s leading role in transforming Saudi Arabia’s economy and the broad range of green and sustainable investment opportunities that this transformation provides”.

Saudi PIF — Saudi’s Public Investment Fund head of global capital finance Fahad Al-Saif. Picture: Reuters

Red Sea Global, the developer behind the world’s most ambitious regenerative tourism project, also announced earlier this year that it had achieved financial closure on a $3.8 billion green loan and revolving credit facility with four Saudi banks.

The fund, which manages more than $600 billion in assets and plans to grow that to over $1 trillion by 2025, expects to invest more than $10 billion by 2026 in eligible green projects, including renewable energy, clean transport and sustainable water management.

Globally the first green bond was issued in 2007 by the European Investment Bank while, in the Middle East, the first green bond was issued by First Abu Dhabi Bank in 2017.