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Energy transformation to benefit Middle Eastern banks

Aytech Pseunokov predicted that banks and financial institutions would eventually become the primary funding source for the climate transition

Banks in the Middle East stand to gain a lot by helping the oil and gas sector to switch to greener and more sustainable technologies.

According to Boston Consulting Group, regulators and policymakers might address the issue by setting carbon pricing that accurately reflects the cost of greenhouse gases and is in line with global carbon price levels.

According to a recent consultant assessment, additional financial and non-financial incentives should exist to assist decarbonization and create environmental and business policies that support climate goals.

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

First, funding non-bankable green projects with lower risk-adjusted returns or more considerable investment risks should be made. Examples of such projects include assisting the research and development of cutting-edge technologies like renewable energy and carbon capture, utilization, and storage (CCUS).

The second is increasing the risk-adjusted returns of private capital investments in green projects using various risk mitigation tools.

The third suggestion was to use knowledge to support and counsel policymakers and regulators on the changes required to scale up climate finance.

According to Aytech Pseunokov, project head at Boston Consulting Group, banks in the area need to assess the risk of switching to cleaner energies in their portfolios and prepare for the future.

He predicted that banks and financial institutions would eventually become the primary funding source for the climate transition as climate finance regulations are implemented and green initiatives become more bankable.

“Up to that point, Middle Eastern banks would profit from assessing the effect of transition risk on their portfolios and putting themselves in the best position for the future by announcing portfolio emissions reduction targets and joining international alliances to share best practices. Doing nothing is a far riskier alternative since it keeps their portfolios’ exposure to the effects of climate change growing,” he observed.

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