What key climate finance trends and developments should we be keeping an eye on in 2023? Climate finance was a major focal point of 2022 with three particular trends coming to the forefront in the MENA region: More issuances of green bonds and sukuks, the growth of carbon markets, and increasingly heated discussions about compensation for climate damage and funding to ensure a fairer transition to a lower-carbon future, culminating in COP27’s landmark loss and damage agreement. So, what can we expect to see in terms of progress on these fronts in the year ahead?

A continued commitment to sustainable finance: Strong investor appetite for green debt instruments and commitment from MENA’s public and private sectors to raising sustainable funding are ongoing trends, head of MENA Debt Capital Markets at HSBC Khaled Darwish told Enterprise Climate. 2022 was a positive year for MENA’s ESG market, “and there’s more to come in 2023,” Darwish added. “Across all sectors, we’ve seen an increased commitment to looking at strategies to expand the investment in cleaner sources of energy and renewables — even with the energy crisis,” Darwish noted.

UAE’s COP28 should help maintain this momentum: The strides made by MENA in 2022 in addressing climate change are partly the result of increased focus from investors, media, and internal stakeholders, noted Darwish. Key international conferences like COP27 and COP28 taking place in the region have also been effective in refocusing attention on strategic initiatives in the ESG space, he added.

We can also expect more corporate green bond issuances in 2023: HSBC worked with multiple stakeholders throughout 2022 — including Qatar’s Masraf al Rayan — to establish sustainable financing frameworks, Darwish noted. “In 2023, when market conditions are hopefully more stable for issuers, you’ll see some of the issuers whose debut frameworks we’ve worked on come to market,” he added. We could see the issuance of green bonds on the UAE’s Abu Dhabi Global Market (ADGM) from 2023, ADGM’s Head of Sustainable Finance Mercedes Vela Monserrate told Bloomberg in November.

While in Egypt, more sovereign green issuances are also on the cards: Egypt was the last country in the region to issue a sovereign green bond, and it’s already indicated it could issue green and sustainable development sovereign bonds worth around USD 500 mn apiece next fiscal year.

Maiden ESG sovereign bond issuances from major regional players could follow: Several regional governments — including Saudi, Qatar, Kuwait and Abu Dhabi — haven’t yet made their ESG debuts, but sovereign issuances are definitely pending, Darwish said, pointing to PIF’s 100-year ESG bonds issuance as a prime example of the scale of ambition in this area. “Once a sovereign does its ESG issuance and communicates its strategic ESG priorities, framework and areas of focus, I think that helps reshape the focus of everyone — especially in a region with a multitude of government-related entities across multiple sectors,” he added.

Investor interest in green bonds and green sukuks will also remain strong: Green bond demand will likely continue to outstrip supply — including in emerging and frontier markets, European Bank for Reconstruction and Development (EBRD) Principal, Local Currency & Capital Markets Development Razvan Dumitrescu told Enterprise Climate. The EBRD also expects to see increasing interest for green sukuk coming out of Egypt and Jordan, he noted. “The key challenge is if issuers are keen to tap the debt capital markets, given the increasing interest rates and sub-investment grade credit profile — leading to higher expected cost of funding,” Dumitrescu added.

Over in the carbon markets arena, Egypt is ready to strike: We’re keeping our eyes peeled for the EGX’s launch of Africa’s first voluntary carbon market (VCM) — due in mid-2023, according to EGX boss Ramy El Dokany. As of late November, the EGX was close to finalizing contracts with a Canadian fintech to supply the technology for the carbon credit platform, according to El Dokany. The bourse is partnering with the Agricultural Bank of Egypt and Enara Group’s Libra Capital to establish Libra Carbon, the Egyptian company that will supply carbon offsets to the VCM — in part, by working with emissions-reduction projects to create a carbon offset pipeline. Egypt’s broad emissions reduction market — including carbon trading — is expected to “grow considerably,” Libra Carbon’s head of project development Omar El Nemr told Enterprise Climate in November.

Many details still need ironing out: The VCM’s regulatory framework was pending review by Egypt’s cabinet as of November, and an auditing and verification system for carbon certificates also needed to be put in place, El Dokany noted at the time. Discussions were taking place in late-2022 between the EGX and global offset verifiers including Verra and Gold Standard, and between Egypt’s UN high-level climate champion Mahmoud Mohieldin and Financial Regulatory Authority Executive Chairman Mohamed Farid on points including the market’s technical and regulatory requirements. We can assume these will continue to be a priority in 1H 2023, in the run-up to the VCM launch. We may also expect to see the EGX hold roadshows throughout Africa to market carbon trading, El Dokany noted in November.

The GCC’s interest in carbon markets is also likely to gain traction: The UAE’s ADGM is said to be working on a framework for the first-ever regulated voluntary carbon market. The ADGM announced in November its plans to launch a VCM in a matter of weeks and its Financial Services Regulatory Authority implemented regulatory changes that made voluntary carbon credits a tradable financial instrument on the ADGM. It’s unclear whether plans to launch a separate VCM are also in place.

Finally, loss and damage funding remains a key point of debate: Anger about the climate crisis is increasing in developing countries and wealthy nations must respond “urgently,” US climate envoy John Kerry recently told the Guardian. But the details of the loss and damage fund would need more work in the coming year, the publication noted him saying. “How you manage [loss and damage] is still at issue: how do you approach this challenge of the financial arrangements,” Kerry said.

But we should see some progress early in 2023: A transitional committee tasked with negotiating the details of the loss and damage fund is expected to meet for the first time before the end of 1Q 2023. The 24-member committee — 14 of whom represent developing countries and 10 developed nations — will identify the scope of work, funding sources, and priorities for loss and damage action, Mohieldin told Enterprise Climate in December.