The Middle East's Sustainable Finance Imperative with KPMG
Sustainable finance has risen from niche to necessity, and nowhere is this transformation more vital than in the Gulf Cooperation Council (GCC) region.
With ambitions that align with global frameworks like the Paris Agreement and the UN Sustainable Development Goals, Gulf nations are charting an unprecedented course toward environmental and social accountability.
“In a world where environmental and social accountability is paramount, sustainable finance has transitioned from a niche consideration to a mainstream imperative,” says Shargiil Bashir EVP and Group CSO at the First Abu Dhabi Bank (FAB).
The financial sector, as revealed by a report from KPMG Lower Gulf and FAB, is at the forefront of this transformation, mobilising capital to drive a low-carbon economy and diversify national revenue streams.
Renewable energy and beyond
Renewable energy dominates the GCC's sustainable finance narrative. Solar and wind projects are blossoming across the region , with the UAE increasing its clean energy contribution to nearly 28% of the energy mix by 2023.
Saudi Arabia , too, has set ambitious targets, launching projects that will deliver an annual capacity of 20 gigawatts by 2024. These efforts reflect a commitment to decarbonisation but also an understanding of economic diversification’s critical role in long-term sustainability.
Masdar , a UAE-based renewable energy company, exemplifies this trajectory. In 2023, it issued a US$1bn green bond, leveraging sustainable finance to channel funds into renewable projects.
Beyond renewables, sustainable finance is fostering progress in energy-efficient infrastructure and water management. Saudi Arabia leads the region with over 2,000 green building projects.
The UAE, through its mandatory green building regulations, aims to cut energy consumption while enhancing infrastructure resilience. Water management, another critical area, has seen strides in desalination technology and recycling systems.
Water scarcity is an acute challenge for the GCC and the Gulf region more generally. Investing in the conservation of water is going to be vital to the region's future sustainability, but also its long-term economic security.
The challenges of scaling sustainable finance
Despite these gains, systemic hurdles remain. Regulatory inconsistencies and the lack of standardised ESG metrics continue to undermine progress.
According to KPMG's report, fragmented taxonomies and disclosure frameworks create barriers for investors seeking clarity and comparability. The absence of harmonised definitions has led to concerns over greenwashing, with investors wary of sustainability claims that lack substantive backing.
Data challenges further complicate the landscape. ESG data, critical for assessing impact, is often incomplete or unreliable. KPMG's research highlights that 65% of investment professionals cite data availability as a significant obstacle.
These gaps limit informed decision-making and the scalability of sustainable finance initiatives.
The skills gap is another pressing issue. Transition finance, which involves funding the shift from high to low-carbon activities, demands specialised expertise.
Yet, as highlighted in the report, there is a shortage of professionals equipped to manage complex ESG metrics and integrate them into financial strategies. This gap underscores the need for significant investment in training and capacity-building across the financial ecosystem.
The opportunities for economic and social transformation
Despite these challenges, the potential for sustainable finance to drive economic growth is enormous. KPMG estimates that over US$2tn could be added to the GCC's GDP by 2030 through investments in sustainable infrastructure and renewable energy.
Additionally, over one million green jobs are projected to emerge in the region during this period, bolstering employment and economic diversification efforts. Many experts in the region believe the youth of the Gulf will be crucial in this period.
“With over 1 million jobs projected in the GCC from green investments by 2030, the youth play a pivotal role in driving this transformation,” says Ali Al Dhahera, Managing Director and CEO of Tadweer Group, an environmental organisation, established to promote circularity across the UAE.
“Their innovation, energy, and leadership will be key in shaping industries like renewable energy, circular economy, and sustainable agriculture,” he explains.
Small and medium-sized enterprises (SMEs) are key to this growth. However, these businesses often face barriers in accessing sustainable finance due to limited credit histories and a lack of collateral.
Governments and financial institutions are stepping in, with initiatives like green credit guarantees and sustainability-linked loans tailored to SMEs. “Supporting SMEs is crucial for ensuring the inclusivity of the green transition,” an industry expert explained.
What are KPMG and FAB's forward-looking strategies?
The KPMG and FAB report outlines several recommendations to accelerate the adoption of sustainable finance. Among these is the need for a unified GCC-wide taxonomy for sustainable investments.
This would enable consistent impact assessments and build investor trust. Policy incentives, such as tax breaks for green projects, are also essential for fostering private-sector participation.
Capacity building remains a cornerstone of progress. Financial institutions must prioritise ESG training to equip professionals with the skills needed for robust impact measurement and reporting.
The UAE, in particular, has shown leadership by incorporating ESG principles into its national framework.
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