The United Arab Emirates (UAE) is gearing up to launch a substantial climate-related investment fund, $30 billion, in collaboration with BlackRock, TPG, and Brookfield.
This initiative coincides with the UAE‘s efforts to strengthen its position as host of the United Nations Climate Summit COP28.
UAE’s Strategic Climate Investment Fund
Overseeing the fund is Lunate Capital, a new Abu Dhabi-based asset manager, backed by $50 billion in assets.
Earlier this year, Lunate began operations under the guidance of UAE national security adviser Sheikh Tahnoon bin Zayed al-Nahyan. He is the brother of the Gulf state’s ruler, Sheikh Mohammed bin Zayed al-Nahyan. Chimera Investment, along with its senior management, owns Lunate.
Executives of Abu Dhabi Growth Fund and Abu Dhabi wealth fund ADQ will be the managing partners of Lunate Capital.
At least $5 billion of the fund’s investment is slated for Global South countries, reflecting the oil major’s intentions to allocate a significant portion of resources to these regions. Leveraging its significant oil and gas reserves, estimated at $2.5 trillion, UAE could direct substantial funds toward climate-related initiatives.
Sultan al-Jaber, the president of COP28, has consistently emphasized the importance of climate finance during the summit in Dubai. Up to 180 heads of state or government and tens of thousands of delegates are attending the summit over the next two weeks.
Financial Times’ analysis showed that the Arab nation was associated with about $100 billion in green energy investments this year.
However, the UAE’s selection as COP28 host raised scrutiny due to concerns about its role in overseeing global climate negotiations. After all, it’s the world’s largest oil and gas producer.
Climate Finance Landscape and COP28 Imperatives
Each year since the creation of the COP, member countries meet to discuss matters related to climate change. The COP’s 21st session created the Paris Agreement, a global consensus to collectively achieve critical climate goals.
One such goal is to limit global temperature rise by reducing greenhouse gas emissions and achieve net zero by 2050. To meet this goal, the world needs about $125 trillion in climate investments by 2050, according to 2021 UN research.
Similarly, the International Energy Agency, noted that around $4.5 trillion is needed every year to be invested in clean energy by the early 2030s.
In January, BloombergNEF reported that investment in clean energy transition increased by 31% in 2022, at $1.1 trillion.
There has also been a movement to reform multilateral development banks’ financing focus, such as the World Bank and IMF. They have to pump more funds to climate-related investments.
Over a week ago, the World Bank decided to certify forest carbon credits and climate finance to boost carbon markets.
Meanwhile, there’s also a rising plea for private investors to work with public finance to support green projects. This is especially important in developing countries that lack enough funds to transition their energy systems to greener power sources.
Plus, there is a shortfall in cash to make the world’s economies adapt to rising global temperatures.
A climate finance expert remarked that the $30B investment is a serious figure that will make the UAE a center of climate finance.
‘Loss and Damage’ Fund: A COP28 Milestone
The first days of COP28 witnessed a pivotal moment with the establishment of a critical ‘loss and damage’ fund to assist vulnerable nations in handling climate-related disasters. COP28 President Sultan Ahmed al-Jaber lauded this as a positive step forward for the summit.
The creation of this fund prompted contributions from various nations, with the UAE leading with a commitment of $100 million. Subsequent pledges followed from Britain, the United States, Japan, Germany, and the European Union.
A longstanding request from developing countries, the fund marks a good start for further negotiations during the two-week summit.
A think tank representative emphasized the importance of this breakthrough, highlighting that isolating the ‘loss and damage’ fund in negotiations could pave the way for more genuine agreements.
As COP28 unfolds in Dubai, the UAE’s $30 billion climate investment initiative alongside the establishment of a ‘loss and damage’ fund signifies both progress and scrutiny.
While investments in climate action are lauded, the nation’s role as a major oil and gas producer sparks apprehensions. The climate summit’s early momentum via these initiatives presents a platform for crucial negotiations, setting the tone for meaningful compromises in the weeks ahead.