It’s encouraging to see the many climate commitments and pledges from countries and organizations around the world, dedicated to a sustainable energy transition and to building a resilient economy. In 2021 the UAE was the first country in the Middle East to pledge to reach a net zero economy by 2050, neighboring countries including Saudi Arabia and Bahrain shortly followed with their own pledges. For those of us who are climate-concerned, these pledges provide us with hope, an acknowledgement that climate change is a tangible threat, and validation that decision-makers are also increasingly recognizing the largest economic opportunity in decades.
For the region, the opportunity of this climate transition is particularly sizable. On the one hand, MENA is one of the most vulnerable regions to the effects of climate change, warming up at almost twice the global average speed. Following the current status quo of policies and investment, MENA countries are expected to lose at least 14% of their annual GDP by mid-century. On the other hand, achieving a net zero economy places the MENA region as one of the most benefited ones globally, mitigating over 17% of GDP losses, and creating over 1 million jobs in the GCC alone. The regional economy therefore can protect itself to seize this massive opportunity.
The next decade is crucial for economic growth globally, and investing in long-term climate strategies is at the core of building a resilient economy in the region. The Middle East has experienced rapid economic growth and industrialization, adapting to macroeconomic headwinds and regional dynamics; a crucial piece in this growth puzzle has been technology. It’s been fascinating to see how technology has transformed the economy in the past decade, and how quickly all the ecosystem players have adopted new behaviors and supported new ventures across different industries: in the GCC the share of digital payments has almost doubled since 2019, in MENA cash on delivery has dropped by 40% in the past 2 years, and telehealth consultations are on the rise in the GCC. Technology will play a similar role when reflecting on the climate transition: increasing accessibility, enabling multi-solving products and services to tackle numerous social and environmental issues at once, and enabling the economy to be more resilient to future external shocks.
In tracking the progress on addressing climate change and its effects on humans and the economy, one can get lost in the overwhelming volumes of data we have access to, the constant stream of news from all corners in the world and the rapid advancements and deployment of technology. To address this, we need a comprehensive and holistic framework capturing the different types of technologies that will drive us towards a sustainable future: a ClimateTech compass. This compass may guide the different players in the technology ecosystem and beyond to understand what tools we have, the progress on implementation, and what gaps are left to fill. We have been building a similar framework since we started monitoring this space and its growth regionally and globally for the last 5 years, observing and investing in the growing body of early-stage startups that are leveraging technology to address today’s most pressing environmental issues.
The North (Star): Reduction and Mitigation
One must not forget the main objective of the climate transition: reducing greenhouse gas emissions. MENA countries currently emit over 5% of the global CO2 emissions, and as their economies continue to grow the need to fuel them with low-carbon energy sources becomes imminent. The International Renewable Energy Agency (IRENA) estimates the region’s electrification rate to be 16%, and while the region is on track to meet its objectives by 2030, IRENA warns that the set targets constitute only half of the renewable energy capacity needed by 2030 to stay below the 1.5C degree benchmark.
Increasing renewable energy sources in the economy has a multipronged effect on key industries and the development of new technologies. It is critical for the sustainable growth of metropolises like Dubai, Riyadh and Cairo, but it is also an important component as the region expands its manufacturing industry, transportation networks and urban planning. We have seen regional governments invest in this space, the UAE has invested over $40B in renewable energy over the past two decades, and Saudi entities have been building a diverse portfolio to accommodate electric vehicles in the Kingdom. Having this foundation and with the price of renewable energy decreasing every year, we see an immense potential in investing in early stage technologies that further advance deep decarbonization including energy storage, battery optimization, smart grid and built environment.
Reducing greenhouse gas emissions also includes capturing the excess carbon there is in the atmosphere. The carbon capture and utilization space has seen a rapid growth in funding activity in the past years, and while this technology should not act as a band aid to slow down the deep decarbonization of the economy, it is a central piece in achieving net zero in the next couple of decades. It is worth highlighting the work being done by 44.01, an Omani startup leveraging CC&S technology and the regional conditions to scale its operations and impact across the Gulf.
The West: Focus on Data
Leveraging the experience from building fundamental software tools in the past decade, entrepreneurs in the region have the opportunity to design the software tech stack to capture and monitor data from greenhouse gas emissions, water and more. There is a wide range of products one can build, including climate risk analytics leveraging artificial intelligence, carbon accounting and trading platforms based on blockchain infrastructure, and an infinite number of products embedding climate data in industries like insurance, logistics and real estate. This data layer will become closely interwoven with all industries, and will be a fundamental database to monitor progress across several levels including national climate risk exposure, Nationally Determined Contributions (NDCs) committed at COP and Vision plans including Vision 2030.
A great example of this is Dendra Systems, an Australian startup that is looking to expand to the region. Their product suite focused on ecosystem restoration enables corporates and governments to leverage detailed ecosystem data to plan and monitor the restoration of thousands of hectares of degraded land. They are able to do so by capturing data from drones they deploy on the land, and by building state-of-the-art technology to streamline this data into actionable insights. With the recent high growth in the region from SaaS and FinTech companies, we see this space as the next destination for ambitious entrepreneurs to build the backbone of the new climate data economy.
The East: Adaptation
Climate change will continue changing the behavior of consumers and enterprises. Adapting to more frequent extreme climate events, increased pollution and scarcity of resources will require new business models. It’s the dawn of circular economy frameworks, maximizing yield while ensuring sustainable continuity of existing resources.
One can begin to observe a growing number of tech startups building adaptation products. From consumer marketplaces that allow individuals to rent or resell any product, to companies tackling waste and efficiency plugging technology directly into the design of clothes, food and industrial applications. A large opportunity we have been studying has been WasteTech. According to the World Future Energy Summit, Gulf residents produce one of the highest waste per capita volumes in the world, yet the infrastructure is able to support a circular economy that is able to identify and reduce unnecessary waste, and maximize the value of what is left.
The South: Regeneration
The planet still hosts a vast nature wealth that needs to be preserved, both on land and in the ocean. An increasing number of countries are pledging to protect key biodiversity areas, yet we continue observing deteriorating soil quality and increasing acidity levels in the ocean. Needless to say, this problem lies at the core of any economic growth plans, and addressing it will ensure access to millions of hectares of food, agriculture, raw materials and more. We are starting to see a growing body of startups that are using technologies including Artificial Intelligence and Internet of Things to build products to regenerate land, food systems, and the highly complex network of the global supply chain.
We believe that the MENA region can act as the nexus of the global sustainable supply chain, taking a strategic role in building the interconnected tissue for global industries to continue expanding with high-quality traceability and transparency. This opportunity is embodied by startups like Seafood Souq, a UAE-based startup leveraging technology to create a digital ecosystem for the global seafood trade. Started in 2018 as a B2B marketplace, the company now caters 80% of its business to clients around the world, and is expanding its suite of products to maximize its value across the supply chain including SFS Trace – a digital product in support of the United Nations SDGs providing certified traceability for seafood imports. In August 2022 the company showcased their project in Oman in partnership with the International Pole and Line Foundation (IPNLF), where they trained local fishermen to sustainably catch tuna via pole-and-line, increasing the quality and preservation of the catch and increasing the selling price for the fishermen from 75 cents a kilo to up to $14 a kilo. The impact Seafood Souq is generating is a clear demonstration that we are in the right moment to build global companies that align people, planet and profit.
Weaving Everything Together
The economy that policymakers and investors build today needs to be resilient and last for the decades to come. Climate change is the largest threat we are facing, yet it presents the largest opportunity to design a powerful, reliable system; and using a framework such as the ClimateTech compass can strengthen collaboration, accountability and transparency. All actors have a role to play in this climate transition – investors, policymakers, entrepreneurs and academia – in order to push on all fronts to drive the economic and environmental returns we as a economy and as a planet need.
