As Corporate America Makes Green Retreat, GCC Firms Should Hold the Line

Corporate America is undergoing a “great green retreat,” undermining the momentum that climate finance has built in recent years. Concurrently, President Donald Trump’s administration had dealt a final blow to America’s global climate finance ambitions. The dismantling of public US entities, such as USAID—which collaborates with private American firms on global climate initiatives—has further dampened private sector interest in the field. As a result, several American multinational enterprises have begun deprioritising their climate goals, including scaling back on ESG commitments and other climate-related initiatives. 

In contrast, climate finance has been gaining traction in the Gulf region, with the United Arab Emirates (UAE), Saudi Arabia, and Qatar emerging as regional leaders. They have been investing in climate finance not just domestically but also internationally, particularly in the Global South. Consequently, US firms have been among the main drivers and partners in GCC climate initiatives until now.

The GCC states have long maintained longstanding relationships with American entities, including in areas such as renewable energy and climate-smart agriculture—an approach that boosts agriculture while considering climate adaptation and mitigation. US-GCC collaboration in the climate sphere is consistently developing, with the US being recognised as a key supporter. This partnership has not only helped GCC states meet their climate goals but has also opened markets for US-based firms. However, shifts in US policy will potentially offset the GCC’s plans and ambitions in the field.

Additionally, GCC countries have issued various green bonds, which are essentially fixed-income financial instruments that raise funds for climate-beneficial projects. The green bond market has experienced a recent boom, increasing from $600 million in 2021 to $8.5 billion in 2022. This surge highlights the sudden rise in interest and demand for sustainable finance in the Gulf.

With the US retreat, there will be a gap in climate financing which will need to be filled, ideally by those countries whose interests are most threatened by this prospect. In this context, the GCC states should prioritise diversifying their climate finance partnerships, especially in emerging markets, to expand their presence, and influence in the global climate finance landscape. The GCC countries, particularly the Gulf 3—UAE, Saudi Arabia, and Qatar—must also look inward, focusing on their own climate finance policies, and implementing new approaches to attract private ESG investors. By doing this, they should ultimately make the climate finance atmosphere in the region more resilient and impactful in the long-term. 

In recent years, GCC countries have demonstrated their strength in fostering partnerships with countries around the world across various sectors. Now, as one partner retreats, another steps forward. Other global powers may see the American withdrawal as an opportunity to capitalise on and establish themselves as more prominent leaders in the industry. For instance, China, which is not far behind the US in terms of climate finance, has already been actively forming partnerships with GCC countries in this space.

Examples include ACWA Power’s collaboration with Chinese manufacturers to supply wind turbines for the Bash and Dzhankeldy projects in Uzbekistan. Additionally, UAE-based Mensha Ventures has partnered with Chinese companies to invest $1 billion in clean technologies in Asia. This trend indicates the growing opportunities for cooperation between the GCC and China in the realm of upcoming climate finance plans.

At the same time, the GCC is also expanding its partnerships with the European Union. While the EU is also very focused on climate initiatives, it has been more limited compared to the US. Despite the EU’s ongoing collaborations with the GCC, the depth of their relationships are not equal. With climate change being less politicised in the EU than in the US, increased EU-GCC partnerships could provide more stable and reliable avenues of investment and growth. 

In November 2024, during the first EU-GCC Summit in Brussels, there were calls from leaders on both sides for stronger collaboration in climate finance and investments, identifying many potential areas for knowledge sharing and collaboration. GCC countries stand to benefit from the expertise of institutions such as the European Bank for Reconstruction and Development in financing renewable energy projects. Furthermore, the EU is well-positioned in carbon market cooperation, as a global leader in this field, to pave the way for the GCC who is also interested in mobilising funds for climate finance in emerging economies.

Presently, the GCC has invested in climate finance initiatives and projects globally, from Bangladesh to Central Asia, from North to Sub-Saharan Africa, and beyond. However, it could be argued that the GCC could better leverage its platform for economic integration to better support climate finance. For instance, Saudi Arabia has invested over $25.6 billion in Sub-Saharan Africa alone over the past decade, building a strong foundation to incentivise expansion in climate finance in the region. Additionally, the UAE has invested over $3 billion in India during the 2023-2024 fiscal year, making it the largest Middle Eastern investor in South Asia. GCC investments in Asia also extend to ASEAN countries, with $13.4 billion invested between 2016 and 2021, and recent discussions on an ASEAN-GCC trade agreement further cementing GCC investment in the region. 

Although these investments may not explicitly fall within the realm of climate finance, they can serve as a stepping stone. If ongoing GCC economic investments and partnerships are redirected toward climate-related initiatives, they could make impactful contributions to the industry. Economic cooperation through strategic partnerships and financial mechanisms can mobilise great resources for climate action. For the GCC, this foundation is already in place, as discussions have consistently highlighted that financial policies aligned with climate goals can foster sustainable economic growth alongside climate resilience. To address the gap left by the United States, GCC states must align their collaborations across the Global South with clear climate objectives. 

GCC climate investments across the Global South create a win-win situation for both parties. They present an opportunity for GCC countries to support their economic diversification efforts as climate related projects in emerging markets can result in monetary gains, such as through investments in renewable energy and the energy transition. These investments can also help GCC states fulfil their own climate goals, such as their investment in Africa’s agricultural sector, which supports the GCC’s own climate resilience and food security objectives. 

In tandem to external action, GCC countries must leverage to their domestic resources to compensate for the loss of American green investments and foster regional climate finance initiatives. Across the Gulf, there is a need for more private green investments. While sovereign wealth funds have been successful in attracting investment for climate finance and accelerating climate action, reliance on a primarily state-driven approach acts as a limitation. Integrating private investment in the field attracts capital with proven cash flow potential and innovations, resulting in a synergistic approach that leverages the strengths of both private and public sectors to contribute to the field. 

A key way for governments to attract more green private investment is by establishing clear regulations. This clarity, in turn, increases investor confidence and attracts further investment. Although various ESG frameworks have been implemented, issues such as regulatory uncertainty persist. Organisations in Saudi Arabia, the UAE, and Qatar lack harmonised, standardised reporting frameworks, which has hindered the attraction of more private green investment. For the GCC, this means that the development of a GCC-wide framework focused on climate finance, incorporating a unified and comprehensive set of guidelines, standards, and best practices would be paramount. 

For GCC climate finance, the US withdrawal can be seen as a setback due to America’s prominent influence in the field. However, both inward and outward strategies present an opportunity for the GCC to capitalise on this moment. GCC states must create more accommodating conditions for climate related initiatives, and leverage their economic and political influence in the Global South to expand their climate finance reach. Such measures in the industry present a critical opportunity for the GCC states—the actions they take now will determine their future standing in global climate finance.

Photo: ACWA Power

New Climate Financing Targets Present Opportunity for the Gulf

Following two weeks of COP29 negotiations, exhibitions, and panel events, delegates representing governments around the world reached a major consensus. Most significantly, they agreed wording on a new climate financing target for developing countries, international carbon market standards, and a support programme for national adaptation plans (NAPs) for the least developed countries.

These three key victories for the climate agenda present great opportunities for the Gulf states, particularly Saudi Arabia, the United Arab Emirates, and Qatar—collectively referred to as the Gulf 3—to play a leading and supportive role in investing in a 1.5C-aligned and resilient future, which was the fundamental aim of the 2015 Paris Agreement.

At the 2009 Copenhagen Climate Summit (COP15), developed countries agreed to mobilise $100 billion of annual climate financing for developing countries by 2020. This target was unfortunately never met, with the deadline extended to 2025 during the Paris Agreement signifying a commitment to updating the target to increase its ambition by the end of the decade. This brings the focus to 2024’s negotiations, which culminated in this target being updated to $300 billion annually by 2035.

This target and metric are highly contested. Developing countries want to increase the target further as their financing needs are much greater than this amount. The Overseas Development Institute has estimated that the need is closer to $1.3 trillion per year by 2035, which is the new cumulative goal. Moreover, much of this financing is currently provided in the form of debt rather than grants, adding to existing debt obligations, which is especially challenging for small and developing nations.

The new agreement requires the 24 developed nations, across Europe, the United States, Japan, Australia, and New Zealand, to deliver on this target. A broader climate financing target of $1.3 trillion has also been set by 2035, and “voluntary” contributions from countries outside the original 24 are allowed to be included in this figure.

Fossil-fuel-dependent states, including the Gulf 3, have faced criticism for their role and influence over the talks, but the opportunity remains for them to contribute further, as part of this new metric for South-South financing.

Documenting and disclosing existing investment flows can build transparency and show the world that the Gulf 3 are serious about contributing to global climate finance flows. Once this reporting infrastructure is in place, the next opportunity for the Gulf 3 would be to demonstrate their leadership and commitment to South-South climate financing by increasing financial flows from the baseline to help meet the $1.3 trillion annual funding target by 2035.  Alongside the likes of China and Korea, this effort will help to further increase South-South climate financing.

According to the World Investment Report released earlier in 2024 by the UN Conference on Trade and Development, foreign direct investment outflows from the Gulf 3 totalled some $38.2 billion in 2023, down from its peak  of $58.2 billion in 2022. While a more detailed breakdown of the share of these investments that can be considered climate financing and the proportion  allocated to other developing countries is not available, this demonstrates the scale of capital available from the Gulf 3 for this opportunity.

A significant chunk of this financing came from Saudi Arabia’s sovereign wealth fund, known as the Public Investment Fund (PIF), with some $620 billion in assets under management. Of the thirteen “vital and strategic" investment sectors PIF has identified for the upcoming five years, seven are crucial to climate financing going forward: food and agriculture, metals and mining, transport and logistics, automotives, real estate, construction and building, utilities and renewables.

A similar sector focus can be seen in the investment portfolios of the UAE and Qatar. The Abu Dhabi Investment Authority (ADIA), Mubadala Investment Company (MIC), Emirates Investment Company (EIC), and Qatar Investment Authority (QIC), which boast a combined portfolio of $1.8 trillion, are responsible for driving investments that can help to fill this global green financing gap. In particular, the Abu Dhabi Fund for Development has a designated mandate for concessional and sustainable financing to local and global emerging economies.

COP29 also led to defined rules for both Article 6.2 and 6.4 in relation to carbon markets. The International Emissions Trading Association estimates this can raise $1 trillion of additional financing for developing countries by 2050, by channelling funding into nature-positive projects, particularly in developing nations. Article 6.2 defines the framework for countries to make bilateral agreements to exchange and trade carbon credits. Article 6.4 creates a centralised international carbon market, supervised by the UN who then validates, issues, and verifies carbon credits.

The defining of Article 6.2 and 6.4 market mechanisms means that legal and regulatory frameworks now exist for the Gulf 3 to partner bilaterally and multilaterally with countries around the world to improve the supply and demand for these carbon credits, working towards a high-quality and high-price carbon credit market.

In Baku last month, Saudi Arabia’s PIF launched a carbon credit exchange called the “Regional Voluntary Carbon Market Company,” with the auctioning of 1 million tons of carbon offset credits. Last year, the UAE Carbon Alliance announced targets to buy USD450m of Africa’s carbon market initiative, with the UAE additionally considering developing its own Emission Trading System. At the same time, Qatari firm Emsurge has announced a public-private partnership to fuel its own carbon market development.

The outcomes of COP29 present a critical opportunity for the Gulf 3 to align their financial resources with global climate goals. By scaling investments through sovereign wealth funds like PIF, ADIA, and QIC, these nations can help close the global climate financing gap and drive South-South cooperation. Transparent documentation and a commitment to increasing flows will showcase their leadership in building a resilient, 1.5C-aligned future.

Photo: WAM