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Growing climate risks in the MENA region pose a number of threats to the investment environment, which could jeopardise both current and future economic plans. While the progress that countries in the region have made by establishing climate action strategies and confirming their commitment to the green transition has signalled to investors that there is a market for mitigation and adaptation technologies, the impact of climate change may be moving at a faster pace. Forecasts show that temperatures in the region have been increasing at double the rate of the global average and that by 2050 they may increase by 4 degrees; potentially making many cities uninhabitable. In the next few years, it is likely that MENA countries will be faced with the challenge of simultaneously managing the impact of extreme weather conditions alongside the risks accompanying the transition towards emission reductions and sustainability policies. Are the region’s economies ready to navigate the impact that climate risks could have on investments and growth? And what could this mean for investments needed to support the growth of new technologies for the green transition?

Known Unknowns

There are two main types of climate risk that businesses and governments need to account for; physical risks and transition risks. Physical risks, which arise from environmental disasters or extreme weather conditions such as heatwaves and droughts, cause damage to infrastructure and health. This has a wide range of implications for the economy, for example damage or loss of physical capital may require redirecting investments from innovation to reconstruction, heat waves or climate-related epidemics reduce labour productivity, exacerbate social inequalities and demand increased public spending which can potentially lead to greater debt burdens. Transition risks on the other hand emerge from changes in policies or regulations aimed at addressing or mitigating the impacts of climate change and the uncertainty about the implications of these changes. These risks include big revenue losses faced by carbon-intensive industries as a result of carbon emission reduction policies and taxes, decline in GDP of fuel exporting countries caused by changing energy prices and changes in consumer behaviour on numerous industries.


In a report by British International Investment on the impact of climate change on emerging economies in 2022, which surveyed company and fund executives across Africa and Asia, 68% of respondents stated that climate change is currently affecting their business and 72% were concerned that it could impact their capacity to grow their business or investment portfolio in the next decade. With regards to how value chains have been impacted by physical climate events, which 58% of respondents experienced in 2022, investments were the second most disrupted area after operations. As a result, more businesses (73%) are integrating climate risks into their strategy and financial planning through a number of measures including changing investment strategies, avoiding certain types of investment (mainly those with a negative impact on the planet) and changing their choice of acquisitions and divestments.


While this is generally a positive sign of adaptation, it also means that some businesses and sectors are at risk of losing future investments and becoming less viable. It also means that reporting and disclosing climate-related risks is going to be, more than it has already become, necessary for financial viability and market competition.

Keeping Up with Changing Global Norms

In order to mitigate these risks, governments, alongside businesses, need to build resilience in a number of areas including food systems and water security, energy, urban infrastructure and finance. Financial planning in particular is a cross-cutting component and thus fundamental to resilience. At the moment, by global standards, MENA countries are lagging behind with regards to the number of companies conducting Economic Social and Governance (ESG) reporting and financial disclosures. In order to achieve governments’ climate goals, private sector action is also needed. According to a 2022 survey published by Bain & Company, which evaluated the disclosure and sustainability measures of over 200 publicly listed and private companies in the region, only 12% announced net-zero ambitions and only 6% have defined roadmaps for addressing climate change. While some big companies in the region have implemented actions to reduce emissions, increase renewables and scale up low carbon technologies, the overall trend shows a gap between action in the region and global action.



However, the lack of consistency in pursuing ESG goals or reaching consensus about their importance is not unique to the region as one PwC survey of 325 global investors showed that nearly half would not risk any returns on investment to achieve ESG goals. PwC also found that there is a clear disconnect among senior business leaders where there is general knowledge about the physical dangers of climate but little understanding about the specific impact that it could have on their business. Still, this trend is quickly shifting as more corporate stakeholders are trying to change the way businesses account for climate risk. This shift is driven by three main factors; greater attention by financial institutions to hidden risks in their investment portfolios, national government’s working towards decarbonization objectives and the spread of new climate reporting requirements. So, as global practices shift away from surface level ESG reporting towards much more specific climate risk assessments, there is a need to move towards gathering more hard data on climate risk especially among banks which are at the core of the ecosystem. Governments must support this shift in order to ensure companies remain competitive, strengthen ties with climate-related industries in other countries and stimulate innovation in mitigation and adaptation technologies.

State-led Green Transition

Recently, MENA countries have taken strides towards more ambitious climate goals and made efforts to attract investments in those areas in order to maintain and increase economic growth. Countries like Lebanon, Egypt, the UAE, Yemen, Saudi Arabia and Bahrain have all pledged to decarbonize by 2050-2060, at least 5 countries in the region have so far submitted their National Determined Contributions and the Gulf countries are already working to move beyond fossil-based energy by investing in renewable energy and stimulating growth in other sectors. Such initiatives have numerous benefits for the region, especially with its high potential as a hub for solar and wind energy, however, current and planned public expenditure in most MENA countries, particularly in the GCC, is quite high by international standards and out-balances private sector and foreign direct investment. Research on budget balances in the region between 1990-2019 also shows that temperature changes have negatively affected government budgets and increased debt with current climate projections expected to increase public debt at 16% in 2060-2079 and further decreased fiscal balances. Furthermore, the prominent presence of state-owned enterprises across various sectors limits the region’s appeal to external investors which governments will need to ensure fiscal sustainability.


With regards to investment in climate tech specifically, there are also numerous barriers to the growth of startups and SMEs including regulation and policy barriers, high cost of complex administration, concerns about geopolitical stability and macroeconomic risk and a lack of support to kickstart investments. Although Egypt, Saudi Arabia and the UAE have several private and public programs to support startups, they are yet to fully meet the specific needs of climate tech startups. However, the startup ecosystem is changing rapidly and venture capital firms are emerging to bridge the gaps in investment. For example, in 2022 Dubai-based firm 8X Ventures was established with plans to invest $20 million in the region’s climate tech and cleantech startups. Nevertheless, legal and regulatory environments must quickly adapt in order to support this growth and keep up with global standards.


While governments in the region have made broad efforts to put climate change on the list of national priorities and to create a more enabling environment for growth of climate-related industries and companies, more needs to be done to mitigate the risks climate change could have on the economy. This means pushing to establish universal norms for climate risk reporting as well as integrating climate risk into national and private investment strategies. Business leaders in the region also need to clearly identify the physical and transition risks that could affect their operations, supply chain and consumers behaviour to name a few and integrate these considerations into their strategic and financial planning. Finally, governments and businesses together must cooperate to identify priorities for both mitigation and adaptation in order to be able to cope with sudden shocks.


Greenpeace MENA. “MENA Region Warming at Nearly Twice the Global Average.” Greenpeace MENA, November 2, 2022. https://www.greenpeace.org/mena/en/the-implications-of-climate-change/.


British International Investment. Rep. Emerging Economies Climate Report 2022. British International Investment, 2022. https://assets.bii.co.uk/wp-content/uploads/2022/10/18093953/EmergingEconomiesClimateReport-2022-1.pdf


World Economic Forum. “How MENA’s Businesses Can Aid the Fight against Climate Change.” World Economic Forum, November 7, 2022. https://www.weforum.org/agenda/2022/11/middle-east-climate-change-private-sector/


Cox, Emma, Colm Kelly, Barry Murphy, and Nicole Röttmer. “Time to Get Serious about the Realities of Climate Risk.” PwC, May 16, 2022. https://www.pwc.com/gx/en/services/sustainability/publications/risks-and-opportunities-of-climate-change-on-business.html#an-analytical-framework


LIBF. “How FinTech Can Help Firms in the Middle East Measure Their ESG Exposures.” London Institute of Banking & Finance MENA, 2022. https://mena.libf.ac.uk/pdf-download/


Giovanis, Eleftherios, and Oznur Ozdamar. “The Impact of Climate Change on Budget Balances and Debt in the Middle East and North Africa (MENA) Region.” Climatic Change 172, no. 3-4 (2022): 1–27. https://doi.org/10.1007/s10584-022-03388-x


Clean Energy Business Council. “Venture Capital in MENA Climate Tech.” Enterprise, March 2022. https://enterprise.press/wp-content/uploads/2022/05/Venture_Capital_in_MENA_Climate_Tech_d9fb9bcf5a.pdf


Wamda. “8x Ventures to Deploy $20 Million in MENA CLEANTECH Startups.” Wamda, February 19, 2023. https://www.wamda.com/2023/02/8x-ventures-deploy-20-million-mena-cleantech-startups


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