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Banking institutions in the Middle East to gain from financing energy transition

Green bond issuance in the region, according to the BCG report, increased by 38% between 2016 and 2020.

Banking institutions in the Middle East to gain from financing energy transition
[Source photo: Anvita Gupta/Fast Company Middle East]

Financing the oil and gas industry’s transition to greener technology could be beneficial to banks in the Middle East, according to a new Boston Consulting Group (BCG) report.

According to the report, regulators and policymakers might address the issue by establishing carbon prices that fairly reflect the cost of greenhouse gasses and align with global carbon price levels.

There should be additional financial and non-financial incentives to assist decarbonization and create environmental and business regulations that support climate goals, the report stated.

According to the report, green bond issuance in the region increased by 38% between 2016 and 2020. In 2020 alone, Middle Eastern governments were responsible for 97% of green bond issuance, up from 13% four years earlier.

The first of the report’s three suggestions was to finance environmentally friendly endeavors with lower risk-adjusted returns or larger investment risks, such as advancing the study and development of cutting-edge technologies like renewable energy and carbon capture, utilization, and storage (CCUS).

The second is increasing private capital investments in green projects’ risk-adjusted returns through various risk mitigation tools.

The third suggestion was to use knowledge to assist and counsel regulators and politicians on the adjustments required to scale up climate finance.

“With time, as climate finance regulation is rolled out and green projects become more bankable, banks and financial institutions will become the key source of funding for the climate transition,” said Aytech Pseunokov, project leader at BCC.

“Until then, Middle Eastern banks would benefit from reviewing the impact of transition risk on their portfolios and preparing themselves for the future by declaring portfolio emissions reduction targets and joining global alliances to exchange best practices.

“Doing nothing means maintaining their portfolios’ ever-increasing exposure to the impacts of climate change, a far riskier option.”

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