Clean energy investment may be hit by economic slowdown

Reuters/Rula Rouhana

• Global financial crisis adds pressure to hit targets
• Estimated $6trn required to fund energy transition
• Private capital will be squeezed

The global economic downturn could have serious implications on investment into clean energy and cause climate change targets to be pushed back, experts have warned.

Elias Hajj, senior partner at McKinsey & Co, said during Abu Dhabi Sustainability Week that an estimated $6 trillion is needed annually to fund the transition to clean energy.

But with countries facing rising inflation and high interest rates it could be hard for them to guarantee the outlay.

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Alex Fraser, CEO of the London Institute of Banking and Finance in the UK, said the 2030 deadline to cut CO2 emissions by 43 percent may not be possible in the current economic climate, but as long as the stamina for decarbonisation remains, the race to net zero is best completed later rather than never.

“It’s going to require a lot of private capital to move into that space quite quickly and, at the risk of stating the obvious, this is perhaps not the time when investors have got lots of spare cash and we may have to wait until some of the economic conditions improve to see that flow improve,” Fraser said.

“I’m very encouraged that progress is being made at a great pace but I never thought 2030 was at all a reasonable target given where we started from and given the high interest that we’ve all had to endure over the last couple of years.”

The British bank Standard Chartered in April concluded that the UAE alone would require $681 billion of investment to finance its transition to a net zero economy, a target it has set for 2050.

Rishi Kapour, co-CEO of Investcorp in Bahrain, told delegates at the Abu Dhabi event that the global consensus to address climate change “actually presents one of the most compelling return/risk adjusted attractive opportunities for the next 30 years”.

Kapour explained that the number of countries signed up to a net zero target had reached almost 150 by the end of last year.

He said demand for capital to support innovation and scale has grown from 1,500 companies two years ago to “north of 8,400 corporates globally”, representing about $130 trillion in total commitments at the end of 2022.

“The most attractive investment opportunity is investing in companies that provide technology, products and services to consumers and corporates worldwide to help them on their net zero targets,” Kapour said.

“Because all the fundamental underlying foundations and the driving forces are already in place and that’s all about providing growth capital to scale these technologies.

“We’re not talking hundreds of millions of dollars, we’re talking in trillions in terms of the size of the market opportunity.”

Patricia Torres, head of sustainable finance solutions at Bloomberg, added that investment into clean energy must increase four-fold compared to fossil fuels.

“We know for a fact that we need to invest in fossil fuels because of energy life dependancy, but what we really need to change is the ratio of investments between clean energy and fossil fuels,” Torres said.

The UAE, in particular, is increasingly being recognised for its commitment to financing a green and sustainable future. Last month, as part of the Financial Services: State of the Nation Survey 2022, the emirates recorded the highest scores among several key markets.

Carried out by fintech firm Finastra, the survey found that 99 percent of UAE respondents agreed that financial institutions have a responsibility to support the communities they serve, up from 88 percent last year, while 96 percent stated that ESG (environmental, social, and governance) is important.

The UAE’s appetite for green lending was also highest, with 94 percent of those surveyed agreeing that it presents an opportunity for growth and revenue generation.

Ahmed Mohamed Al Naqbi, CEO of Emirates Development Bank, said at the Abu Dhabi conference that the bank’s mandate is to approve approximately AED30 billion in loans by 2026, with a particular focus on manufacturing, advanced technology, infrastructure, healthcare and food security – what he described as “sectors for the future”.

“For us it’s incredibly important that we don’t just mobilise our own capital into financing these sectors, but also bring in with us partners from the commercial sector,” Al Naqbi said.