UAE requires AED 2.5 trillion investment to transition to Net-Zero
Standard Chartered launched its latest research report titled “Just in Time: Financing a just transition to net zero”, which looks at the transition financing gap for emerging markets and how to close it. According to the report, the United Arab Emirates will require AED2.5 trillion (USD 671.1 billion) to transition to net-zero.
The study found that: If the finance, the UAE needs to transition to net zero, is provided by developed markets, UAE household spending could increase by around AED 2 trillion (USD 551.2 billion) compared to self-financing; If emerging markets fund their own transition, without the contribution of developed markets, household consumption in these markets could fall by 5 per cent on average each year.
ROLA ABU MANNEH, CHIEF EXECUTIVE OFFICER, STANDARD CHARTERED UAE: “The UAE is well positioned to capitalise on the major economic opportunities offered by the path to net-zero. Reaching this objective would require a strong focus on ensuring economic prosperity throughout the transition process in addition to a great deal of investment. The public and financial sectors need to come together to help facilitate the flow of investment into Net-Zero. Failure to deliver transition finance could mean climate goals are missed, therefore triggering an environmental catastrophe.”
Mr Bill Winters, Group Chief Executive, Standard Chartered, said the climate change is the greatest structural challenge facing the world today and addressing it will require humanity’s greatest ever collective effort.
In his foreword to the report, Mr Winters said “COP26 rightly signalled greater focus on financing the net zero transition, especially in the markets we call home – in Africa, Asia and the Middle East. It’s here where low carbon technologies can have the greatest impact but there are also profound climate risks and a huge transition challenge ahead of us.”
“Our latest report, Just in Time, issues a call to action by demonstrating the potential impact, on emerging market communities, of private investors failing to deliver on their COP26 pledges and plugging the USD94.8 trillion financing gap. Our report shows that without help, emerging market populations could be USD79.2 trillion poorer by 2060 – the date by which some key markets seek to achieve net zero. There is an opportunity for private investors to help drive a just transition, moving assets from developed to emerging markets with the help of the right policies and regulation.
“Private capital from developed markets could help boost household consumption in emerging markets by 4.5 per cent on average each year between 2021 and 2060 and emerging market GDP would be 3.1 per cent higher on average each year between 2021 and 2060. Just in Time also confirms that, if emerging markets continue with their existing climate policy and transition investments, we are likely to see catastrophic global temperature increases of at least 3°C by 2100 (perhaps even as high as 3.5 or 3.6°C).
A press statement said that Standard Chartered has committed to reaching net zero in their financed emissions by 2050, with interim targets for the most carbon-intensive sectors by 2030.
They are planning to mobilise more than AED1.1 trillion (USD300 billion) in green and transition finance by 2030 to support the transition to net zero in the markets we can home, supported by Transition Finance Framework. They are also accelerating new solutions, including through a new dedicated Transition Acceleration Team to support clients in high-emitting sectors.
While the UAE requires investment of around AED 2.5 trillion (USD 671.1 billion) to transition to net zero, Just in Time reveals that emerging markets as a whole need to invest an additional AED350 trillion (USD94.8 trillion) – a sum higher than annual global GDP – to transition to net zero in time to meet long-term global warming targets. This is on top of the capital already allocated by governments under their current climate policies.
Private investors can contribute over AED300 trillion (USD83 trillion) of the AED350 trillion (USD94.8 trillion) that is required – underscoring the urgent need for financial institutions to fulfil green and transition finance pledges.
However, as shown in a previous report titled, The USD50 Trillion Question, encouraging investment in emerging markets is a difficult task. The world’s top 300 investment firms with total assets under management of more than USD50 trillion, have just 2 per cent, 3 per cent and 5 per cent of their investments in the Middle East, Africa and South America, respectively.
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Just in Time argues that to transition in the fairest way possible, greater collaboration is required in strategy, policy, and financing. More importantly, banks need to live up to the pledges made during COP26 if ordinary households are to avoid bearing the costs of their market’s transition to net-zero.
Just in Time looks at two pathways to closing the emerging market transition finance gap, self-financing by emerging markets and developed market financing, where capital is provided through grants and loans. Exclusive emerging market self-financing would lead to higher taxes and an increase in government borrowing, meaning that families in emerging markets, including the UAE, will have less to spend on their everyday needs. However, developed market financing has the opposite effect.
However, developed market financing could see emerging market household spending increase by around AED6.25 trillion (USD1.7 trillion) on average each year (compared to self-financing) and would also stimulate global growth – GDP could be around AED400 trillion (USD108.3 trillion) higher cumulatively between now and 2060 if developed markets finance the transition. Emerging markets being able to reach net-zero without hampering their growth or prosperity would represent a just transition.