The Banking Executive Magazine - January 2023 Issue

Middle East Banks Middle East Banks CAN BENEFIT FROM FINANCING ENERGY TRANSITION Middle East banks can benefit signif- icantly from financing the transition of the oil and gas industry to cleaner, more sustainable technologies. Regulators and policymakers could address the challenge by establishing carbon prices that adequately repre- sent the cost of greenhouse gases and are aligned with international carbon price levels, Boston Consulting Group (BCG) said. A new report by the consultants said there should also be financial and other incentives to support decar- bonisation and develop environmen- tal and industrial policies that align with climate objectives. The report said that in 2016-2020, green bonds in the region grew by 38%, and in 2020 alone, Middle Eastern governments drove 97% of green bonds compared to 13% four years prior to that. The report made three recommenda- tions, first providing financing for non-bankable green projects with lower risk-adjusted returns or higher investment risks, such as supporting research and development of innova- tive technologies such as renewable power and carbon capture utilisation and storage (CCUS). The second is mobilising private cap- ital investments in green projects by improving their risk-adjusted returns with various risk mitigation instru- ments. Using expertise to provide support and advice to policymakers and reg- ulators on the reforms needed to scale up climate finance was the third recommendation. Banks in the region need to review the risk of transition to cleaner ener- gies on their portfolios and to pre- pare for the future, said Aytech Pseunokov, project leader at BCC, as they become the key funding source. “With time, as climate finance regu- lation is rolled out and green projects become more bankable, banks and financial institutions will become the key for the funding of the climate transition,” he said. “Until then, Middle Eastern banks would benefit from reviewing the im- pact of transition risk on their portfo- lios and preparing themselves for the future by declaring portfolio emis- sions reduction targets and joining global alliances to exchange best practices. “Doing nothing means maintaining their portfolios’ ever-increasing expo- sure to the impacts of climate change a far riskier option.” ISSUE 169 JANUARY 2023 the BANKING EXECUTIVE 29