Green financing is receiving substantial global attention due to its role in promoting sustainable development. The Arab world has recently started to recognize the importance of this direction for achieving the Sustainable Development Goals and combating climate change. This article reviews the current status of green financing in the Arab region, focusing on the challenges and opportunities available to enhance this subject. Examples from countries such as the United Arab Emirates, Egypt, and Saudi Arabia will be presented to illustrate the progress made and the potential of this sector in the region.

The State of Green Financing in the Arab World

The Arab world enjoys considerable economic and environmental diversity. While some countries possess vast renewable energy resources, others suffer from water scarcity and environmental issues such as air, water, and soil pollution. Despite these differences, most Arab countries have recognized the importance of transitioning towards sustainable development, which requires the support of green financing.

The Organization for Economic Cooperation and Development (OECD) defines green financing as financing aimed at achieving economic growth while minimizing pollution and greenhouse gas emissions, in addition to improving the efficiency of natural resources usage.

The World Bank was the first to issue a green investment fund in 2008, but the first green bonds were issued in July 2007 by the European Investment Bank.

Green financing encompasses financial tools including bonds, loans, green Sukuk, green investment funds, and green insurance.

A report by Arthur D. Little observed an increasing trend among institutions operating in the financial services sector, across the Middle East and North Africa, to accelerate the adoption of environmental, social, and governance (ESG) practices as a strategic pillar to enhance their sustainability commitments in all areas. The report noted that the Middle East and North Africa region has made significant progress in sustainable and green financing, where investments in this field reached $24.55 billion in 2021, compared to $3.8 billion in 2020, marking a notable growth of 532% on an annual basis.

The United Arab Emirates is a leader in green financing, having launched the "Green Agenda 2030," which focuses on sustainable development and combating climate change. The same report confirmed that green and sustainable financing investments in the UAE achieved exceptional growth of 32% during 2022, stating that the UAE continues its journey to enhance the momentum of environmental, social, and governance practices across the Middle East and North Africa, based on this exceptional growth.

Egypt has recently taken significant steps towards localizing renewable energy over the past few years, including:

The inauguration of several renewable energy projects, most notably the Benban Solar Power Plant, which consists of 32 stations capable of generating 1650 megawatts.

The government previously granted a golden license to establish green hydrogen and green ammonia production factories, with an investment cost of $6 billion.

This was followed by an agreement between the Egypt Sovereign Fund, Norway's Scatec, the UAE's Fertiglobe, and Orascom Construction to establish and operate a green hydrogen production project in Ain Sokhna, with a production capacity of 100 megawatts.

In Saudi Arabia, the "Saudi Green Initiative" has been launched with the aim of increasing renewable energy and reducing emissions. Saudi Arabia will work to reduce carbon emissions by more than 4% of the global rate needed to achieve the goals set in the Paris Climate Agreement.

This will be achieved through a number of programs, most notably renewable energy projects that will provide 50% of electricity production within the Kingdom by 2030, in addition to clean hydrogen technology projects, including the world's largest green hydrogen production project, in NEOM city, with investments reaching up to 5 billion dollars.

Challenges facing green finance in the Arab world

Despite the progress made, there are still many challenges facing the development of green finance in the Arab world, including:

• Lack of awareness and financial literacy: Investors and individuals in the region face a lack of awareness of the importance and benefits of green investment. There is a need to enhance financial education to increase awareness of the importance of sustainable investment.

• Regulatory and legal constraints: Renewable energy and environmental projects may face obstacles in obtaining licenses and complying with laws. Therefore, regulatory constraints should be reduced to encourage more green investments.

• Lack of innovative financing mechanisms: The region needs to develop new financing mechanisms such as green bonds to attract larger investments in environmental and sustainable projects.

Green finance opportunities in the Arab world

Despite the challenges, there are many opportunities to develop green finance in the Arab world, including:

• Economic diversification: Green finance can help Arab countries diversify their economies by supporting new sectors such as renewable energy, sustainable agriculture, and green infrastructure.

• Financial innovation: Innovative financing mechanisms such as green bonds and green Sukuk can be developed to attract larger investments in sustainable projects.

• Regional cooperation: Arab countries can enhance regional cooperation in green finance by sharing expertise to accelerate the shift towards sustainability.

• Developing the green banking sector: Banks and financial institutions in the Arab region can play a larger role in financing green projects and providing sustainable financial services.

• Attracting foreign investment: Arab countries can attract sustainable foreign investments by improving the investment climate and developing a regulatory framework for green finance.

In conclusion, despite notable progress in green finance in the Arab world, it still faces many challenges. By focusing on increasing awareness, simplifying regulatory procedures, and encouraging innovation, sustainable investments in the region can be boosted and sustainable development goals achieved, contributing to a faster transition towards a sustainable future for current and future generations.