Standard Chartered announced today the launch of its latest research report titled “Just in Time: Financing a  just transition to net zero”, which looks at the transition financing gap for emerging markets and how to close it. According to the report, the United Arab Emirates will require AED2.5 trillion (USD671.1 billion) to transition to net-zero.

The study found that:

• If the finance,the UAE needs to transition to net zero, is provided by developed markets, UAE household spending could B increase by around AED2 trillion (USD551.2 billion)compared to self-financing
• If emerging markets fund their own transition, without the contribution of developed markets, household consumption in these markets could fall by 5 per cent on average each year

The transition finance gap

While the UAE requires investment of around AED 2.5 trillion (USD671.1 billion) to transition to net zero, Just in Time reveals that emerging markets as a whole need to invest an additional AED350 trillion (USD94.8 trillion) – a sum higher than annual global GDP – to transition to net zero in time to meet long-term global warming targets.  This is on top of the capital already allocated by governments under their current climate policies.

Private investors can contribute over AED300 trillion (USD83 trillion) of the AED350 trillion (USD94.8 trillion) that is required– underscoring the urgent need for financial institutions to fulfil green and transition finance pledges.

The transition finance gap by market
	Investment (power)	Investment (energy efficiency including industry, transport, buildings)	Other public expenditure (early scrappage, heating subsidies)	Offset – (carbon tax revenues, household heating tax)	Transition finance gap:
China	USD21.9 trillion	USD30.2 trillion	USD2.3 trillion	USD19.2 trillion	USD35.1trillion
India	USD8.5 trillion	USD6.0 trillion	USD573.3 billion	USD2.7 trillion	USD12.4 trillion
Indonesia	USD2.1 trillion	USD2.0 trillion	USD107.9 billion	USD1.4 trillion	USD2.7 trillion
Nigeria	USD220.7 billion	USD215.4 billion	USD40.8 billion	USD193.5 billion	USD283.3 billion
South Africa	USD445.5 billion	USD1.4 trillion	USD143.3 billion	USD1.2 trillion	USD833.6 billion
Malaysia	USD1.3 trillion	USD310.6 billion	USD129.1 billion	USD833.4 billion	USD909.9 billion
Kenya	USD128.4 billion	USD285.1 billion	USD32.3 billion	USD32.2 billion	USD413.6 billion
UAE	USD680.1 billion	USD211.6 billion	USD28.2 billion	USD259.2 billion	USD671.1 billion

However, as shown in our previous report, The USD50 Trillion Question, encouraging investment in emerging markets is a difficult task. The world’s top 300 investment firms with total assets under management of more than USD50 trillion, have just 2 per cent, 3 per cent and 5 per cent of their investments in the Middle East, Africa and South America, respectively.

Just in Time argues that to transition in the fairest way possible, greater collaboration is required in strategy, policy, and financing.  More importantly, banks need to live up to the pledges made during COP26 if ordinary households are to avoid bearing the costs of their market’s transition to net-zero.

Closing the transition finance gap

Just in Time looks at two pathways to closing the emerging market transition finance gap, self-financing by emerging markets and developed market financing, where capital is provided through grants and loans.

Exclusive emerging market self-financing would lead to higher taxes and an increase in government borrowing, meaning that families in emerging markets, including the UAE, will have less to spend on their everyday needs. However, developed market financing has the opposite effect.

However, developed market financing could see emerging market household spending increase by around AED6.25 trillion (USD1.7 trillion)on average each year (compared to self-financing) and would also stimulate global growth – GDP could be around AED400 trillion (USD108.3 trillion) higher cumulatively between now and 2060 if developed markets finance the transition. Emerging markets being able to reach net-zero without hampering their growth or prosperity would represent a just transition.

Self-financing and developed market financing: The impact on household consumption
	Household consumption (per cent)(annual average between 2021 and 2060)	Household consumption (annual average between 2021 and 2060)	Household consumption in total (2021 – 2060)
India (self- financing)	-3	-USD143.9 billion	-USD5.8 trillion
India (developed marketfinancing)	4.7	USD197.7 billion	USD7.9 trillion
Indonesia (self-financing)	-3.4	-USD48.6 billion	-USD1.9 trillion
Indonesia (developed market financing)	3.6	USD55.6 billion	USD2.2 trillion
Nigeria (self-financing)	-0.8	-USD8.3 billion	-USD335.1 billion
Nigeria (developed market financing)	0.8	USD5.4 billion	USD216.7 billion
South Africa (self-financing)	-1	-USD7.1 billion	-USD281.8 billion
South Africa (developed market financing)	1.4	USD7.7 billion	USD311.1 billion
Malaysia (self-financing)	-4.6	-USD26.5 billion	-USD1.1 trillion
Malaysia (developed market financing)	4.1	USD21.9 billion	USD878.0 billion
Kenya (self-financing)	-6.8	-USD10.4 billion	-USD417.0 billion
Kenya (developed market financing)	4.0	USD6.2 billion	USD246.6 billion
UAE (self-financing)	-8.1	-USD31.1 billion	-USD1.2 trillion
UAE (developed market financing)	4.7	USD13.8 billion	USD551.2 billion

Rola Abu Manneh, Chief Executive Officer, Standard Chartered UAE, said: “The UAE is well positioned to capitalise on the major economic opportunities offered by the path to net zero. Reaching this objective would require a strong focus on ensuring economic prosperity throughout the transition process in addition to a great deal of investment.”

She added: “The public and financial sectors need to come together to help facilitate the flow of investment into Net Zero. Failure to deliver transition finance could mean climate goals are missed, therefore triggering an environmental catastrophe.”

Our approach to net zero

Standard Chartered has committed to reaching net zero in our financed emissions by 2050, with interim targets for the most carbon-intensive sectors by 2030.

We plan to mobilise more than AED1.1 trillion(USD300 billion) in green and transition finance by 2030 to support the transition to net zero in the markets we can home, supported by our own Transition Finance Framework.

We are accelerating new solutions, including through a new dedicated Transition Acceleration Team to support clients in high-emitting sectorswww.sc.com/justintime

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