Offsetting carbon, the Halal way

Can you discussion the vision for the first-of-its-kind facility in the MENA region to fund voluntary carbon offsets?

APICORP developed the MENA region’s first Murabaha facility for carbon offsets as part of our commitment to provide financial solutions to enable a balanced energy transition. To understand why we believe it is such an important milestone for the region, we must take a step back and see how it fits within the broader context.

It is plainly evident that the energy transition has reached a critical juncture. The calls for climate action have never been louder. An estimated 50+ billion tons of GHG are emitted into the atmosphere each year. Decarbonising industrial activity has become a top priority as countries and companies from all sectors set sustainability goals and pledge emissions reductions.

We understand that this journey to sustainability is not an easy undertaking. While certainly critical, it is also complex and costly, and it takes time. It must also be balanced, maximising the potential of existing energy sources, with increased investment in alternative ones. This level of complexity requires a sustainable, inclusive ecosystem to provide more effective solutions to accelerate the net zero timeline.

Robust Voluntary Carbon Markets (VCMs), where high-quality carbon credits are traded, are one of the most effective solutions we currently have to stabilise emissions.

Through our carbon offset facility, we are essentially providing governments and companies a viable pathway to immediately begin decarbonising energy value chains and accelerate their journey to net zero emissions. The fact that the offsets are registered on Verra, which is the largest carbon registry in the world, ensures the highest level of trustworthiness and transparency. And to maximise the impact even further, we ensured that the facility is both Sharia-compliant and syndicated, thus making it easier for the regional market to adopt and enable more banks to join.

On the investors’ side, carbon offsets can be used to mitigate risks associated with the energy transition by making their investment portfolios more resilient to fast-evolving climate regulations.

How will this initiative help Middle East oil companies reach net-zero targets?

As the leading suppliers of the world’s energy, oil companies—whether in MENA or elsewhere—face a dual challenge: energy security and energy sustainability. It is a daunting task, but with COP27 and COP28 taking place in MENA for the first time, the region’s oil companies have a significant opportunity to become case studies in how to successfully navigate this energy transition with a balanced, pragmatic approach.

The region’s largest energy companies have announced decarbonisation targets in support of their respective countries’ net zero commitments.

Saudi Aramco targets reducing or mitigating GHG emissions by more than 50 million metric tons of CO2e annually. QatarEnergy plans to reduce net carbon intensity by 15% from upstream and about 25% from the LNG facilities by 2030. ADNOC aims to reduce the intensity of its operational GHG emissions by 25% by 2030.
These giant companies have operations that extend across the entire energy value chain, including energy-intensive, hard-to-abate activities such as petrochemicals and shipping.

What role are financial institutions playing in supporting the energy transition in the region?

We believe that financial institutions in general—and APICORP in particular—have a key role to play as catalysts for the energy transition. Financial institutions can act as a medium to engage with the private sector in certain regions, countries, and sectors.

Being an energy-focused, multilateral, Arab financial institution, APICORP sits at the nexus of the financial and energy worlds and has 10 member countries hailing from the region which has one of the highest carbon emissions per capita in the world. Many of our member countries —Saudi Arabia, UAE, Bahrain, and most recently Kuwait— have announced net zero commitments.

These factors make us ideally positioned because we combine deep industry expertise with the convening power to bring stakeholders together and mobilize the financing needed— which is estimated to be in excess of USD 250 trillion over the next 30 years— for the effective, inclusive, sustainable, and balanced energy transition we hope to achieve.
That is why one our prime focuses is to encourage more private sector involvement in climate finance through various public-private partnership models, as the innovation, appetite for positive disruption, and talent development in each camp is vast.

In addition to the voluntary carbon offset facility, we launched the A/B loan structure, partnered with the Islamic Development Bank on a $1 billion fund for strategic infrastructure projects, issued our debut green bond worth $750 million, and earmarked $1 billion for investment in green projects over next two years.

Can you comment on the outlook for energy investments in the Middle East? Are they still heavily focused on traditional fossil fuels or moving to cleaner energy?

The main focus remains on fossil fuels and will remain so for the foreseeable future, especially in countries which are net energy exporters. However, more resources are being allocated to decarbonise their traditional energy value chains and increase the share of renewables in the energy mix, particularly in the power sector.

Based on our annual MENA Energy Investment Outlook 2022 to 2026, which looks at the energy landscape in the region over the next five years across several sectors, energy investments totalled $879 billion, split 70:30 between committed and planned projects, respectively.

This represents a 9% YoY increase over our 2021-2025 outlook figure of $805 billion, spurred mostly by GCC states where committed projects make up more than 45% of their total energy investments thanks to the windfall from oil and gas export revenues.