How MENA’s biggest actors can help the region’s suppliers and SMEs to decarbonize

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Akram Alami, Partner, Bain & Company, Kelsey Goodman, Community Engagement Lead, World Economic Forum

• COP28 was a catalyst for climate action across the MENA region and governments are taking decisive action through ambitious climate targets.
• But while larger businesses are driving decarbonization efforts with their operations, many smaller suppliers and SMEs are lagging behind.
• Both the public and private sectors need robust climate transition plans that cover the entire value chain to turn MENA’s green ambitions into results.

COP28, held in Dubai last year, was an incredible catalyst for climate action in the Middle East and North Africa. Public sector and large private players are starting to act, and governments have taken decisive action by setting ambitious climate targets.

About 70% of the Middle East and North Africa (MENA) region’s emissions now fall under net-zero pledges, which is up from 60% two years ago. In the private sector, leading large businesses are driving decarbonization efforts within their operations. About 46% of large companies in the MENA region have initiatives to manage their emissions, and 41% of the largest companies disclose their Scope 1 and Scope 2 emissions.

However, smaller suppliers and small and medium-sized enterprises (SMEs) are lagging. The public and private sectors need robust climate transition plans that cover the entire value chain to turn the region’s climate ambitions into results.

Turning ambition into action

To meet national net-zero pledges, organizations need to reduce emissions beyond their four walls. Most global emissions come from Scope 3 emissions, which are created across the value chain.

Addressing emissions from SMEs and suppliers is crucial to decarbonization – and a key challenge. These organizations often need substantial support to prioritize, plan, fund and execute decarbonization strategies effectively.

It’s crucial to support SMEs and suppliers on their decarbonization journeys given their vital role in the economy. SMEs and suppliers contribute 20%-30% of the region’s GDP, on average.

More than 90% of the region’s businesses are SMEs, and they employ 35%–55% of the working population. In Egypt, SMEs employ more than 75% of the working population.

Barriers to value chain decarbonization in MENA

SMEs and suppliers encounter significant barriers to decarbonization. Based on conversations with SMEs and stakeholder representatives, we learned the largest roadblocks are:

• Lack of awareness around decarbonization and insufficient attention from leaders
• Knowledge gaps related to the financial advantages of decarbonization and/or technical expertise to implement decarbonization practices
• Low perceived value of decarbonization, which is exacerbated by limited stakeholder and regulatory pressures
• Financial constraints that hinder financing of decarbonization initiatives

Stakeholders across the region must collaborate to help SMEs overcome these barriers to decarbonization.

Best practices to support SME decarbonization

Despite these challenges, promising developments are emerging in the region. Some members of Leaders for a Sustainable MENA, the World Economic Forum’s community of public and private-sector leaders committed to shaping a climate-resilient future for the region, are leading the way with best practices that can serve as inspiration for other companies to take action towards a sustainable supply chain.

For example, Aramco launched the Taleed programme to accelerate SME growth in several areas, including decarbonization. Aramco supports SMEs with capability-building, strategy development and funding. It also offers broader financial solutions through major national funds with combined capital of over $800 million.

As part of a joint venture with Linde and SLB, Aramco is also building a carbon capture and storage hub in Jubail in the Kingdom of Saudi Arabia (KSA). The hub will provide shared CO2 transport and storage infrastructure for SMEs and other industrial emitters. This will help SMEs to overcome technological or financial restraints, leveraging economies of scale to reach their net-zero goals.

In the retail sector, Majid Al Futtaim sources materials locally through a sustainable procurement policy. The policy promotes suppliers with sustainable offerings and shortens the supply chain, which helps that company adapt to new consumer purchasing behaviours that favour sustainable products. Majid Al Futtaim also joined the CDP supply chain programme to collect and analyse environmental data from their suppliers, enabling them to provide support for emissions reductions.

Furthermore, on the sidelines of the World Economic Forum Special Meeting in Saudi Arabia, Saudi Arabia launched the Sustainability Champion programme to foster cooperation among leading companies through capability building and best practice sharing, fast-tracking their ability to adopt sustainability principles and reporting. As part of the pledge, sustainability champions commit to changing the sustainability practices of three other Saudi companies, creating a ripple effect across the local economy.

Government interventions are essential

As key stakeholders, governments can help incentivize and finance the transitionto resilient and sustainable value chains. Regional policies are catching up to more mature regions, such as the EU. For example:

• Saudi Arabia supports SME decarbonization directly through Monsha’at, the local authority on SME development. The Kingdom also allocated around $180 billion to 80+ broader sustainability initiatives through the Saudi Green Initiative.
• In the United Arab Emirates, the Abu Dhabi Global Market (ADGM) developed a regulatory framework for sustainable investment funds.
• Egypt requires companies listed on the Egyptian Stock Exchange to submit environmental, social and governance (ESG) disclosure reports, which form the starting point of companies’ sustainability journeys. Over the next 10 years, Egypt will invest in a $40 billion green hydrogen project in the Suez Canal economic zone to help decarbonize the country’s energy supply.

Furthermore, the COP28 Presidency, the SME Climate Hub and the We Mean Business Coalition launched a collaborative campaign to help MENA’s SMEs implement net-zero strategies.

Sustainable value chains require collaboration

Resilient and sustainable supply chains require technological innovation, infrastructure and capability-building.

Discover

What’s the World Economic Forum doing about the transition to clean energy?

Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.

Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.

Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.

Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.

To future-proof the global energy system, the Forum’s Centre for Energy & Materials is working on initiatives including Clean Power and Electrification, Energy and Industry Transition Intelligence, Industrial Ecosystems Transformation, and Transition Enablers to encourage and enable innovative energy investments, technologies and solutions.

Additionally, the Mission Possible Partnership (MPP) is working to assemble public and private partners to further the industry transition to set heavy industry and mobility sectors on the pathway towards net-zero emissions. MPP is an initiative created by the World Economic Forum and the Energy Transitions Commission.

Is your organisation interested in working with the World Economic Forum? Find out more here.

All stakeholders across the value chain – including corporations and governments – need to invest in and commit to transformative practices to bridge the current gaps of financing, innovation and risk-taking. Integrating local supply chains with global know-how is crucial in this process.

Decarbonization requires a global perspective. However, the MENA region has unique challenges and opportunities – and it can build on the momentum from COP27 and COP28 to increase innovation and climate resilience. Partnerships between the private and public sector will help the MENA region achieve climate-resilient growth and meet its net-zero commitments by 2050.