COP28 President Sultan Al Jaber sought to deliver a deal that was historic and ambitious at the Dubai climate talks last year. Globally, the UAE Consensus, a landmark agreement which calls for “transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner”, has been taken positively. Many see it as a clear indication and an acknowledgement that the world is at the “beginning of the end of the fossil fuel era”.
Even as the agreement text does not specifically contain the words “phase out”, which has been a bone of contention for some, the spirit and intent of the UAE Consensus is unequivocal. Specifically, it has sent a strong signal to the private sector that the energy transition must and will happen.
For businesses, the next steps are clear, to put in place credible transition plans. And to be credible, this requires analysis and planning at the sectoral level. The good news is that if these sectoral transition plans are done correctly, the Middle East’s youthful economies will be able to experience significant growth, new opportunities and job creation.
For companies in the Middle East, optimism is not enough
As the post-COP28 dust settles, businesses in the Middle East are responding to the UAE Consensus. Many are still looking to the governments for clarity on the thorny issue of fossil fuel reliance. But the tone and focus of corporate dialogue is shifting, with increasing recognition that there are opportunities for growth accompanying the energy transition. Large state-owned enterprises are leading the charge, and we are also seeing investors move forward, buoyed by the excitement surrounding COP28 and its outcomes. They are engaging with the climate finance agenda to a degree not observed before.
But optimism and positive rhetoric are not enough. The Middle East, as a key player in the oil and gas industry, still sits at the heart of the old global energy system. The region has a very complex road to travel, and for business, regardless of the many climate declarations and pledges made, very few have yet to fully understand the actions and compromises they would have to make – to achieve them. Most do not have a credible transition plan, nor have the necessary investments been made to ensure that action plans – and the right expertise - are in place.
The biggest challenge is that there is no “one size fits all” solution. In fact, transition is radically different for different sectors, industries, and markets. Sector-specific transition pathways and analysis are required to identify priority actions. And, while much focus is on the region’s energy sector, other mission-critical sectors also require adequate attention.
For example, the Middle East’s agri-food sector is fragmented, with complex and legacy supply chains. As the region grapples with complicated challenges around food security, biodiversity conservation and climate resilience, the agri-food sector’s net zero pathway requires a level of innovation and technology that cannot be simply copied from other sectors. Instead, these must be specifically tailored to the agri-food sector, while providers of capital pressured to fund the transformation needed – from farm-gate to food distribution.
A vegetable farm in Karak, Jordan. Image: Shutterstock.
Despite this, corporate leaders continue to drag their feet on getting properly prepared for how the inevitable transition will affect their business models, asset valuations, and ultimately revenue growth. While many governments in the region have commendable, ambitious transformation plans, their national visions anchored in a bright future for the region, the private sector continues to lag behind. The harsh reality is that without the full engagement and commitment of the private sector, this bright future will unlikely be attained.
Turbocharging economic diversification
Governments and regulators are acutely aware of this and may well mandate companies to put in place detailed transition plans. To an extent, there is an air of inevitability about this.
However, this goes beyond laws and regulations. For the Middle East, the commitment to transforming the region is closely intertwined with an ambitious vision for the future focused on turbocharging economic diversification and jobs creation. It goes without saying that the energy transition presents massive opportunities for businesses in the region, but these opportunities become even more significant when they are aligned with the governments’ priority to broaden economic reliance beyond fossil fuels. We have observed this in multiple sectors. - For example, several countries in the region have made successful plays to become hubs of innovation and digitalisation, applied across industries including healthcare, financial services, and retail.
Given this trajectory, climate tech is likely to be the ‘next big thing’ for the region. Interestingly, On the climate tech front, while global investment has cooled, statistics point to how the Middle East has been an exception to the trend. The latest Middle East climate tech report from PwC shows that Middle East players almost tripled their funding of climate tech innovation globally in the first nine months of 2023, to US$5 billion, supporting innovators in the United States, China, across Asia and in Europe. The report identified a missing link: Middle East funding for climate tech entrepreneurs in the region itself. Funding dropped sharply in 2023 to US$152 million, down from almost US$1 billion in 2022.
However, this is only part of the story. The report also identified a critical missing link: Middle East funding for climate tech entrepreneurs in the region itself is low. Funding dropped sharply in 2023 to US$152 million, down from almost US$1 billion in 2022. This is clearly something that needs to be addressed if the region wants to continue its emerging position as a climate leader. The UAE Consensus at least provides a springboard from which to act.
Abundant opportunities for a youthful population
Climate leadership is certainly a path worth following for the Middle East. With its youthful, tenacious and energetic population, the region is uniquely placed to emerge in pole position in the climate action race. The UAE Consensus, along with the prioritization of sectors beyond fossil fuels, provides the right tone and incentives for the private sector’s transition.
Business executives convene at the Green Zone at the COP28 climate talks in December. Many businesses have struggled to develop decarbonisation targets that are aligned climate science. Image: UNclimatechange/Flickr
However, this will require purposeful and scalable investment, not just in assets and technologies, but in the people as climate innovators, leaders and doers. These investments must also be aligned with sector-level transition planning to ensure the right skills are developed where needed. Ultimately, both governments and businesses benefit. With abundant growth opportunities during transition, investing in the region’s people to deliver will drive job creation and economic development.
Looking ahead – what can businesses expect from COP29?
As we look toward COP29 later this year, it is clear the UAE Consensus provided a robust and commendable framework for climate action, but more needs to be done. The good news is that the UAE-driven ‘COP Presidencies Troika’, formed by the presidencies of COP28, COP29 and COP30, sets in place a platform for consistency and cooperation for upcoming COPs in Azerbaijan and Brazil. The roadmap launched by the Troika, which focuses strongly on international cooperation, gives businesses some degree of certainty on the likely direction of COP and allows corporate leaders to design new strategies that align to global objectives.
Companies in the Middle East will have to understand the nuances of this agenda and prepare for the likely outcomes of COP29 and beyond. Given the insights from the Consensus and likely direction of COP29, companies should start, urgently, by understanding the implications of transition for their business models. Simultaneously, they should ensure ample investment in their workforce to support these significant changes.
