Mena investment community is moving to fund climate action

Reuters

From wildfires in Morocco to the devastating floods in Pakistan, the effects of the changing climate are being seen all over the world.

Geopolitical events have caused energy shortages and food security risks, and the societal impacts are particularly acute in emerging countries.

It is apt, then, that this year’s Cop climate summit is in Africa. 

The environmental challenges that the Mena region faces are widespread and incredibly serious – water scarcity, environmental health, rising temperatures, drought, biodiversity loss and crop failure.

The disproportionate impact on lives and livelihoods in the region was highlighted by the UN’s former climate change executive secretary, Patricia Espinosa.

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Speaking at the first-ever Mena Climate Week in Dubai earlier this year, Espinosa highlighted that even a small increase in average global temperatures in the Mena region risks the devastation of water security, food production, infrastructure, and human security.

She said that climate action is the “critical path” to a stable, secure, and prosperous future.  

These warnings explain why so many sovereign wealth funds, central banks and industry bodies in the region have zeroed in on climate-related objectives and regulatory frameworks to encourage and monitor environmental, social and governance investments.

The good news is that there is already strong momentum. According to Bloomberg, green sustainable debt issuance in Mena hit $18 billion in 2021 – up by 122% on 2020. This is a clear indication that the region’s green finance market is fast-becoming mainstream.  

And we should be seeing more of the same, as Cop27 places an emphasis on delivery of the promises made last year at Glasgow. A key focus remains on mitigating and implementing net-zero commitments, especially on how countries and stakeholders would work towards strengthening and delivering on 2030 targets. 

While currently more than 90 percent of climate finance goes into climate mitigation, the importance of adapting has come to the forefront with the recent droughts, heatwaves, and extreme flooding. 

Businesses and investors need a balance between mitigation and adaptation, further driving up the demand for climate financing. 

Finance and collaboration continue to be the key enablers of change and so scaling finance for real climate outcomes is a focus alongside ensuring that there is broad stakeholder engagement.

And as nations and entities move towards meeting net-zero emissions commitments, we as an investment community are able to innovate and develop solutions to help finance the transition.

One exciting development is the launch at Cop27 of newer technologies that bring data from satellites, such as climaterace.org, which provides real emissions data for investors to use. 

Relying on data alone is a risky approach. Data isn’t always audited, which could lead to inconsistent methodologies for portfolio construction. So active stewardship is a necessary lever for delivering the outcomes that are sought by investors. 

It is important to have a dialogue with the company and engage with them along their net-zero journey.

Active ownership, proxy voting and shareholder engagement are some of the ways in which investment management companies can move the climate agenda forward.

Combining climate progress with financial risk gives an opportunity for investors to address both financial and climate risk mitigation goals through a lens of transition risk.

With a dedicated concerted effort, the Mena investment community can stimulate conversation and innovation that support financing options to cut climate change in the region.

Cathrine de Coninck-Lopez is global head of environmental, social and governance at Invesco