Banks, micro-credit entities, insurers and investors play a crucial role in making the shift to a circular economy possible. By financing sustainable development projects, they help build a more resilient economy that addresses global challenges, creates jobs, and benefits society, while also fighting climate change and repairing environmental damages. According to the United Nations Environment Programme (UNEP), Green financing could be promoted through changes in countries’ regulatory frameworks, harmonising public financial incentives and through increases in green financing from different sectors, increases in investment in clean and green technologies and climate smart blue economy and through use of green bonds, and so on.
Akshay Sardana, VP, Strategy & International Development, The Continental Group, a leading insurance intermediary and financial services solutions provider in the GCC region, said, the success of the circular economy hinges on multi-stakeholder participation. “Financial services and insurance companies can promote circularity in day to-day operations, educate clients about asset managers who have measurable ESG track records, partner with external impact-led organisations, and support initiatives underpinned by the three R’s: Reduce, reuse, and recycle,” he added. The Continental Group supports projects such as the Ghaf tree planting initiative aimed at greening of the UAE deserts using drone technology. “As we specialise in finance, which ultimately determines the success of any impact project, we are aware of the pivotal role we can play. That awareness is increasingly reflected in our services/solutions/strategies,” he added.
Green projects are also profitable, says Matteo Boffa, a Swiss Serial ImpactEntrepreneur & Angel Investor. He has invested in an array of green projects including Thaely, which produces shoes with recycling plastic bags and bottles; ZeLoop, a reward platform that incentivises users for enabling plastic recycling and Etuix, which transforms billboards into unique and sustainable products. He has recently invested in a vegan ice cream company in Dubai.
Why invest in environmental projects?
Boffa said, “In my extensive travels, I have interacted with less privileged people in unfortunate countries. I acknowledge my privilege and want to give back to society. Secondly, environmental projects such as sustainability startups and social impact startups are growing faster in an organic way. And people are increasingly choosing to invest in such projects. And thirdly, you can make money out of green projects. Investing in sustainability projects has proved beneficial to me – I can acquire a good number of shares and resell them after a certain amount of time or stay in the company and get the profit shares.”
The deciding factors
Sardana says, “The belief in the “common good” is vital when supporting a project; if you are not ideologically invested in the project, the impact will fall short of expectations. You should trust your good instincts and the people involved in the project to achieve and sustain a circular economy. Subsequently, through a feedback loop and course corrections, the project can be nurtured and expanded. ” For Boffa, it is the people. “You can have the best project, idea, technology and so on. But if the team fails, everything falls apart. If a good team is set, the rest can be adapted along the road.”
Another deciding factor is young entrepreneurs. “I try to invest in people that are younger than me. I can bring my added value not only financially but also as a mentor.” Does he think investing in start-ups is risky? “Higher the risk, better the opportunity. My start-ups investments have been very successful and profitable,” he noted. “The risk arises only when the businesses are not really transparent – when they claim to be a green business but are really not. I try to do my due diligence properly to avoid this kind of situation.”
Nicholas Watson, Co-Founder and CEO, Udrive, commented, “Startups are the backbone of UAE commerce, they make up the largest employer base and mobility user group. SMEs represent 94 per cent of the companies and institutions operating in the UAE and contribute more than 50 per cent to the country’s GDP. So investing in this space to grow it, mature the size of these companies and help them achieve dominance is key. Eventually, small companies grow into big ones and it goes full circle.” Talking about his sustainability initiatives, Watson said, “Udrive is a pay-per-minute car-sharing platform and each of our cars is used by an average of 100 people per month instead of one person, as most private cars are used. We aim to have fewer cars per population, and we are growing quite quickly in that space, contributing to the UAE’s vision.” The platform is currently trying out electric vehicles and introducing more of them into its fleet. “I believe we will soon see on-demand start-ups that will also bring electric car charging to people’s homes soon.”
Securing green finance
How difficult or easy is it to secure finance for green projects? “Green finance is an area that presents significant opportunities for GCC countries, which have well-developed capital markets. This is an oil economy and investors’ mandates and analysis are not geared to longerterm visions and business models, hence it is difficult. However, this is starting to change and more investors are evaluating green opportunities that have an impact on today’s world as well as the future,” pointed out Watson.
What needs to be done?
He added, “In this region, easier access to debt funding is readily available to larger companies and family group businesses.
But for SMEs who don’t have assets to put up as collateral, it’s harder. We need to see more debt investors increasing their risk and return appetite. Once that happens and there is more transparency over where their funding is going I believe we will see far more projects led by startups flourishing. There will be failures but that is part of the risk profile of funding early/ junior green projects. As mentioned earlier, green finance can accelerate the region’s goals of economic diversification and job creation.”
According to PwC, GCC governments should focus on four priorities to take advantage of this opportunity: promote environmental sustainability; create a green investment body; strengthen capital markets; and develop standard and transparent reporting mechanisms for environmental performance. Some of these priorities are well underway with various national schemes and strategies being introduced and implemented such as the aforementioned net-zero public transport emission roadmap.
Boffa said, “I think financial institutions are moving more towards tech investment as return on investment is quick. But now they are realising that green investment is also profitable. It does have a tangible impact. And so, it is changing. Government entities, banks and other financial institutions are now investing in green projects.”
Advantage the Middle East
With the circular economy transition gaining momentum globally, governments are launching supporting regulatory frameworks and financial incentives for efforts such as recycling, said Sardana adding, “Regulators, for their part, are decisively promoting ESG and sustainability funds. In the Middle East, the sustainability imperative has generated visible efforts, be it in the Expo pavilions or Qatar FIFA World Cup’s “zerowaste-to-landfill” philosophy. Regional economies have echoed the need for action plan-led sustainability initiatives at every opportunity.”
In the upcoming UAE-hosted COP28, such efforts will elicit greater attention and approbation. More effective collaborations between policymakers, end users, and solutions providers will lead to the standardisation of circularity across sectors. In an advisory capacity, the Continental Group remains committed to that cause, he said.
Watson said, “While investors around the globe are pouring capital into companies with ESG practices, GCC’s abundant lowcost renewable energy availability puts it at an advantage for green financing. This untapped potential leaves plenty of opportunity; PwC’s analysis has found that green investments in six key GCC industries could have a profound impact by 2030, unlocking up to US$2 trillion in cumulative GDP contribution, creating more than 1 million jobs, and encouraging FDI.”
“More and more green start-ups are coming up in the region. This is a positive sign,” said Boffa, who teaches entrepreneurship and sustainability in several universities in the UAE and Switzerland. “Four years ago, students ignored the topics of sustainability, thinking it was just a buzzword. But now eco-friendly practices have become a way of life for many.”