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Wednesday, 26 October 2022

TODAY: Green sukuk are quite popular + The big COP27 showdown is en route

Good morning, wonderful people — and welcome to another packed issue of Enterprise Climate. We have tons of stuff to talk about, so let’s jump right in:

THE BIG CLIMATE STORY- Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), has set up a regional voluntary carbon market company. It helped facilitate an auction of 1 mn tons of carbon credits — the world’s largest carbon credit auction to date, according to PIF.

ALSO- UAE’s renewables company Masdar acquired UK-based battery energy storage system outfit Arlington Energy — just the latest in a series of acquisitions and investments in European and US renewables projects by big GCC-based players.

WATCH THIS SPACE #1- It’s going to cost more to build solar plants for the next 5-7 years as high inflation and rising interest rates around the globe drive up costs faster than technology and the production of components at scale put downward pressure on the price of new builds. That’s according to Paddy Padmanathan, chief of KSA’s Tadawul-listed Acwa Power.

MEANWHILE- Egypt expects the cost of its green hydrogen production to be at USD 2.68 per kilogram in 2025, Electricity and Renewable Energy Minister Mohamed Shaker said on Monday on the final day of the Egypt Economic Conference. Shaker sees costs falling to USD 1.70 per kilogram by 2050, adding that Egypt is looking lock supply about 8% of global green hydrogen demand, bringing in up to USD 18 bn of revenues to the country. Egypt plans to unveil its national hydrogen strategy at COP27.

REMEMBER- Green hydrogen is gaining traction as fossil-fuel-based hydrogen prices surge by 70% on the back of soaring natural gas prices. Surging demand and accelerated generation of green hydrogen could see green hydrogen priced at under USD 2 per kilogram by 2030. Some pundits think green hydrogen industry could be a USD 73 bn industry, with production being led and dominated by the global south.

The caveat(s): What we’re seeing now is akin to the Klondike or California gold rushes of the late nineteenth century. Global players (real and in their own minds) are flitting from country to country, inking MoUs and letters of intent to build new plants. Most companies have inked more MoUs than they have production capacity. None of them have put together finance packages. And the Biden administration (smartly) drilled a hole in every emerging market’s boat with production tax credits of up to USD 3 per kg, making it far and away the most attractive market for would-be producers.

Speaking of finance for climate projects: COP27 is again the BIG CLIMATE STORY GLOBALLY and looks set to remain so for much of the coming month.

THE COUNTDOWN TO COP (11 days to go)-

A showdown over climate finance is brewing in the run-up to Sharm El Sheikh: The developing world’s frustration with rich-country climate policies that have so far failed to provide financial compensation for climate change-driven loss and damage is continuing to attract coverage in the international press. Though climate finance demands are poised to take center stage in this year’s negotiations in Sharm El Sheikh, it’s the “widening chasm in policy approach that’s likely to be on display,” Bloomberg notes.

Potentially at stake? The credibility of the whole COP process. With the issue of economic compensation having gained fresh urgency after this year’s catastrophic floods in Pakistan (which displaced >30 mn people), the very real prospect that no agreement is reached between wealthier and poorer countries could “upend” the climate talks, Foreign Policy says. This could then call into question the value of COP, says director of the International Center for Climate Change and Development in Bangladesh Saleemul Huq. “If this doesn’t happen in Egypt, the whole COP process will become irrelevant, unfit for its stated purpose,” he says.

MEANWHILE- Finance firms amp up the pressure on companies to set proper emission goals: Pimco, UBS, and Credit Agricole are among a group of 317 finance firms demanding corporate carbon polluters set emissions goals using the Science Based Targets initiative, Bloomberg reports. The firms, which manage a combined USD 36 tn in assets, have asked over 1k of the world’s biggest carbon polluters to set emission reduction targets in line with the Paris Agreement’s goal of limiting global warming to 1.5°C.

Why is this important? Companies without credible emissions reduction strategies could find themselves cut off from funding, as financing becomes increasingly contingent on having credible emissions-cutting strategies. Banks and investors are increasingly pushed to consider climate change impacts when allocating capital, with some of the world’s biggest banks and lenders aiming to eliminate emissions from their portfolios by 2050, the business information service reports.

Stay tuned for more at COP27: The role of financial institutions in lowering emissions will be up for discussion at COP27 in Sharm El Sheikh next month. Khalid Hamza, head of Egypt at the European Bank for Reconstruction and Development, touched on the topic of the supply and demand mismatch in terms of securing financing in an interview with EnterpriseAM’s Going Green earlier this month.

AND- We might have a “truly global energy crisis” at our doorstep — but it could be a boon for renewables: Insufficient LNG supplies and a growing demand for fossil fuels in tandem with OPEC+ cuts could result in the “first truly global energy crisis,” International Energy Agency (IEA) Executive Director Fatih Birol warned at Singapore International Energy Week, Reuters reports. One of the few positive outcomes of the energy crisis is an accelerated drive for clean energy sources, with the IEA revising its forecast of renewable power capacity growth to a 20% y-o-y in 2022 with close to 400 GW of renewables added, up from 8% previously, according to the newswire.

WATCH THIS SPACE #2- Green and sustainability sukuk accounted for 80% of green and sustainability bond sales from GCC-based issuers in 1H 2022, according to a report (pdf) published on Monday by Refinitiv, the London Stock Exchange, UKIFC, and GEFI.

This is part of a growing trend of ESG sukuk issuances from the region gaining steam: Cumulative total green sukuk issuances reached USD 21 bn in the first half of the year, with the GCC and Indonesia together accounting for 53% of these sales. The GCC made debut issuances in 2019, starting with the UAE’s Majid Al Futtaim’s two green sukuk issuances raising a total of USD 1.2 bn. Bahrain made its debut green sukuk issuance in 1H 2022, raising USD 900 mn for Infracorp, the infrastructure investment arm of Gulf Finance House, the report notes. Dubai Islamic Bank intends to issue green and sustainable sukuk, and recently set up a new green financing framework ahead of doing this. Turkey and Sudan also made debut issuances in 2021, the report adds.

But there’s also growth in the global ESG debt market: Global green and sustainability sukuk issuances reached USD 4.4 bn in 1H 2022, after 2021 saw a record USD 6.1 bn-worth of issuances throughout the full year. On average, these sukuk generated order books worth 4.4x their offering values, compared to 3.3x for comparable traditional sukuk, the report notes. Some 82% of annual green and sustainability sukuk have been issued in international markets since 2018, it adds.

YOU’RE READING ENTERPRISE CLIMATE, the essential regional publication for senior execs who care about the world’s most important industry. Enterprise Climate covers everything from finance and tech to regulation, products and policy across the Middle East and North Africa. In a nod to the growing geographical ambitions of companies in our corner of the world, we also include an overview of the big trends and data points in nearby countries, including Africa and southern Europe.

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Enroot Development is hosting a conference titled Empowering the South: Green Economies and Climate Resilience today from 6-9pm CLT at the Greek Campus in Downtown Cairo, Egypt. Speakers at the conference include former Egyptian deputy prime minister Ziad Bahaa El Din, UN High-level Climate Champion for Egypt Mahmoud Mohieldin and Egypt’s International Cooperation Minister Rania Al Mashat. You can register for the event here.

Regional law firm Matouk Bassiouny and its German counterpart Freshfields Bruckhaus Deringer will hold a webinar on 2 November that will spotlight COP27’s potential impact on businesses globally. The online event will also focus on the challenges emerging economies face when unlocking financing options for climate adaptation projects, hoping to create a roadmap that would improve the quality and scale of climate-focused investments in Africa. Representatives from Taqa Arabia, Amethis and Enko Capital will participate as speakers. Register for the webinar here.

ADIPEC will run from 31 October to 1 November in Abu Dhabi, UAE. Some 40 ministers from around the world, including eight from MENA, will attend the event. Those include energy and oil ministers from the UAE, Kuwait, Bahrain, and Egypt. Discussions will partly focus on the transition toward carbon neutrality, a statement picked up by Zawya says. You can register as an exhibitor here, and as an attendee here.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

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