What the Middle East can learn from global circular economy trends
Rassem Zok, CEO of Standard Bank MENA
As governments across the globe scramble for ways to address the looming impact of climate change, the modern challenge is to ensure that the transition is economically viable. Financial institutions have increasingly played a prominent role in the transition to a greener world – whether in facilitating clean energy projects or capturing the economic opportunities of the circular economy.
The business case for adopting circular economy practices
According to consultancy firm Opimas, environmental, social, and governance (ESG) investments jumped to over $40 trillion in 2022, from $23 trillion in 2016. This strongly points to a paradigm shift in investment sentiment, where financial decision-makers gravitate to a more responsible deployment of capital.
There is a strong business case for investors, banks, and other financial services firms to tap into the promises of a circular economy. In a report by UK-based Ellen Macarthur Foundation, a circular economy model could offer annual benefits amounting to $2.1 trillion in Europe alone. China, one of the biggest economies in the world, could also greatly benefit from circular economy practices – up to $10 trillion in 2040.
The political impetus to embrace sustainability
These projections are important in the ongoing conversation about balancing ESG commitments with value creation for corporates. The fight against climate change and environmental degradation could be lucrative – and this drives a strong impetus for the governments, as well as the private sector, to build, and rebuild, their economies against sustainable practices.
There have been many institutional-level initiatives that provide frameworks for countries and domestic industries to adopt a circular economy. Legislation across Europe, South America, and the Middle East have accelerated this shift. In the UAE, the cabinet approved a circular economy policy which sets out a blueprint for the country’s wider sustainability push.
Governments across the region have acknowledged the need for emerging economies to create a more sustainable economic system – especially amid region-specific challenges such as water security and income diversification. Influential companies such as Saudi Arabia’s Aramco, the world’s biggest oil producer, have joined the pledge to adopt circular economy practices. The Kingdom has earlier pledged billions of dollars to fund a region-wide adoption of solutions geared towards significantly cutting down solutions.
The transition is happening – the more important question is how do we keep it going?
The challenge to keep the momentum
Governments and businesses will have to get unwavering support from financial actors – particularly those with the scale, reach, and expertise to further stimulate the transition and ensure no one is left behind.
Inclusivity is key to this economic transformation, and in our experience at Standard Bank, we have seen a positive trend towards empowering the continent of Africa in achieving both its environmental and economic goals. The continent is poised to continue its recovery from the impact of COVID-19, and experts, as well as government leaders, have triggered new conversations about rebuilding the economy influenced by ESG-related policies and initiatives.
Although structural reforms could be underway, there is still a lot to be done from a finance perspective.
The financial sector needs to create internal systems that could facilitate the creation of circular economy-focused products and services. The Ellen Macarthur Foundation report showed a promising trend of debt and equity instruments related to the transition. Financial regulators, banks, and governments have identified specific areas of opportunity to further reflect the advantages of a circular economy to their operations, and the way they intend to support businesses in the wide adoption of these principles.
Moving forward, one of the most effective ways to promote the circular economy is by making it economically viable. The global transition will remain to be a delicate balancing act between economic prosperity and social and environmental responsibility. The key is to remember that both principles are not mutually exclusive.
Government and private sector leaders in the Middle East are well aware of this – and the region, with its forward-looking business environment, could present infinite opportunities in properly navigating the transition.