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Promoting Green Finance in Qatar: Post-Pandemic Opportunities and Challenges

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The recent COVID-19 pandemic had significant implications for both national economies and the global financial system, in addition to hindering the achievement of the sustainable development goals agenda. The UNDP estimates global human development—a combination of education, health, and living standards—could fall this year for the first time since 1990, which highlights how the effects of the pandemic present both an enormous challenge and tremendous opportunities for reaching the 2030 Agenda and the Sustainable Development Goals (SDGs).

With the additional challenges arising from climate change, governments have committed to several policy measures which promote a green recovery to rebuild their economies, while benefiting the people and the planet. The Organisation for Economic Co-operation and Development (OECD) estimates that the public resources committed by governments to support a green recovery amount to at least USD 312 billion. These measures present tremendous opportunities for green finance in general, and Islamic green finance in particular, in the context of Muslim-majority countries.

The State of Qatar, in light of its National Vision 2030 and in order to enhance the diversification of its economy away from hydrocarbon, has taken several measures to mitigate climate change. These include increasing the use of solar energy to more than 20% of its energy mix by 2030, the optimal use of water, improving air quality, waste recycling, increasing green spaces, in addition to the country’s commitment to organizing the first “carbon neutral” tournament featuring the use of solar-powered stadiums and water and energy-saving cooling and lighting technology. The State is also a signatory of the Paris Agreement on Climate Change and supports a number of global initiatives in relation to climate change mitigation.

All these initiatives could be funded via green finance. In this regard, there are four global trends in the financial industry that the State of Qatar can leverage to promote green finance for green recovery:

Growth of SRI and ESG awareness:

Socially responsible investing (SRI) and environmental, social, and governance (ESG) investing are two of the fastest growing investing areas globally. Both are driven by the increasing awareness of social and environmental responsibility. According to the Global Sustainable Investment Alliance, global sustainable investment reached $30.7 trillion in the five major markets at the start of 2018, a 34 percent increase in two years. These include Europe, United States, Japan, Canada, Australia, and New Zealand. Developing green finance instruments and products can attract a growing SRI investor base that seeks to align social and environmental values with its investment portfolios.

Upward trend of Islamic Finance:

According to the Islamic Financial Services Board (IFSB), the total worth of the Islamic Financial Services Industry across its three main segments (banking, capital markets, and takaful) is estimated at $2.44 trillion in 2019, marking a year-on-year 11.4% growth in assets in US dollar terms. According to Thomson Reuters, the industry is projected to reach $3.8 trillion by 2022. Qatar is one of the global Islamic finance hubs with Islamic finance assets representing more than 20% of the local financial system’s assets. With the recent development of Islamic green finance, Qatar has the opportunity to position itself as a sustainable finance leader in the region by promoting synergies between Islamic and green finance growing markets.

Financial innovation for sustainability:

The United Nations Conference on Trade and Development (UNCTAD) highlights that achieving the Sustainable Development Goals (SDGs) will take between $5 and $7 trillion, with an investment gap in developing countries of about $2.5 trillion and the additional net investment required to implement renewable energy solutions standing at $ 1.4 trillion, or about $100 billion per year on average between 2016 and 2030, according to the International Renewable Energy Agency (IRENA). Mitigating this funding gap requires an engaged private sector to make green investments. That is why several green instruments and products were developed across the various segments of the financial industry. These include green retail banking products, including green loans and green mortgages, green corporate and investment products, green project finance, and green venture capital and private equity, as well as green capital market instruments, like green investment funds, green bonds, and sukuk.

Integration of sustainability objectives into national strategies:

Several governments around the world have integrated sustainability objectives and green finance roadmaps into their national strategies, either through a top-down approach, whereby green finance frameworks and taxonomies are harmonized at the country level (as with China), or via market-led collaborative actions. In addition, to overcome private sector investment barriers, such as high up-front costs, long investment timelines, and higher perceived risks, several countries have put in place incentives in the form of subsidies and tax exemptions. The State of Qatar can leverage these experiences through collaborations and partnerships to develop a unique green finance model in the region

Green Sukuk: A Fast Growing Market

Green sukuk is an innovative instrument for financing green infrastructure. It has the potential to become a new asset class targeting both Islamic and socially responsible investors.

Since the issuance of the first green sukuk in 2017 in Malaysia, the market has grown significantly, with twelve issuers in Indonesia, Malaysia, and the United Arab Emirates tapping the market, in addition to the Islamic Development Bank. About $7.6 billion in four currencies (EUR, IDR, MYR, and USD) was raised up to September 2020, with tenors ranging from two to 21 years. The amounts raised were allocated to green construction, energy efficiency, and clean transportation projects.

Promoting Green Finance in Qatar

Although the green finance market is still in an early stage of development in the country, the market has witnessed several initiatives by local institutions that might pave the way to the development of a more dynamic market. In September 2020, Qatar National Bank (QNB) issued the first ever green bond in Qatar, a $600 million tranche, under its MTN Program, with a maturity of five years under its established Green, Social, and Sustainability Bond Framework.

In addition, Qatar Stock Exchange (QSE) introduced an ESG Guidance in 2017 to assist listed companies wishing to incorporate ESG reporting into their existing reporting processes.

While Bond and sukuk issuance in Qatar reached $28 billion in 2019, the market is largely driven by government issuance and commercial banks for corporate issuances, with the exception of Ezdan Sukuk in 2016 and 2017. The development of green sukuk in the country with the enabling ecosystem could facilitate corporate sukuk issuance, thus enhancing market liquidity.

In conclusion, promoting a green recovery in line with the country’s economic diversification objectives and climate mitigation strategies will require the development of an enabling ecosystem for the development of green finance in Qatar. Developing a pipeline of bankable green projects at the country level, market awareness, and promoting synergies between Islamic and green finance will provide the basis for further innovation and policy action, such as green labels, frameworks, and incentives.

Dr. Dalal is Assistant professor of Islamic finance at Hamad Bin Khalifa University (HBKU). She was previously a visiting academic at the Durham Centre for Islamic Economics and Finance, Durham University Business School and a visiting lecturer in a number of international universities. Dr. Aassouli worked at the International Islamic Liquidity Management Corporation in Malaysia where she assisted with the establishment of the IILM's sukuk programme. Before that she held several positions in Europe where she had exposure to the African, European and Latin American markets. Dr. Dalal holds Masters from NEOMA Business School, and Paris Dauphine University and a Ph.D. from ENS de Lyon in France. Her areas of research interest include Islamic finance in general and its implications for corporate finance, ethical finance, development finance, green finance, sustainable development and socially responsible investing

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Green Planet

Climate Change and its Effects on Europe

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If one thinks Putin has become a headache, then the future of Europe under the forecast climate change regime is pneumonia. 

According to this scenario, ice melt from Greenland and the Arctic will raise sea levels around FloridaAside from greater and wider coastal flooding, this change will inhibit the regular Gulf Stream Drift that makes its way across the Atlantic warming northern Europe and ensuring the English climate is even milder.  Part of it of course is due to Britain being an island and so enjoying the moderating effects of the sea — again more so because of the Gulf Stream. 

This relatively even weather in England has undergone change.  More frequent 90F and higher days in summer, once relatively rare, is one symptom — the UK just recorded its highest ever temperature of 104.54F.  There have also been heavy rains and flooding notably in December 2020 when a wide belt across the south suffered catastrophic inundation of historic proportions. 

Scientists and the UN confirm an increase in the frequency of natural disasters.  This includes forest fires, hurricanes or typhoons, excessive rains and floods. 

July 14 might be celebrated as Bastille Day and a national holiday in France but in neighboring Belgium it now commemorates the devastating floods in 2021.  Heavy rains and the Meuse river overflowing its banks turned streets into canals in the eastern city of Liege. The floods extended to the Netherlands and western Germany, caused by a low pressure system that stalled for two days over the region.  Rain falling on soil already soaked by spring rains and overflowing rivers (the Meuse in Belgium and Netherlands, the Rhine and the Ruhr in Germany) devastated the area.  At least 243 people lost their lives and property damage was estimated at $12 billion. 

If last year was one of floods, this year it’s drought and dry heat and forest fires — temperatures hitting 117 F in Portugal and an estimated 75,000 acres lost to forest fires; also dry as tinder Italy where the river Po, the country’s longest river, has been reduced to a trickle.

England has been subject to a similar pattern, suffering some of the worst flooding in its history last year and now reeling from forest fires. “I’ve fought wildfires for decades.  None of it prepared me for the infernos this week,” screams a Guardian (July 22, 2022) headline quoting a firefighter.  London fire fighters have just had the busiest day since the Second World War.

When will governments understand that the earth is changing, that natural disasters piling one on top of the other, and that forest fires in Europe, in Australia, in the US and elsewhere plus floods and typhoons etc., are not coincidences? 

One hopes it is soon, and we humans learn to moderate damaging behaviors.

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The Greater Frequency of Natural Disasters and our Response

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Photo: NASA

While no one can ascribe specific natural catastrophic events to global warming, their frequency appears to have increased.  So it is that forest fire seasons have lengthened, and more fires occur more often and of greater intensity.

The current disaster in the news is in the Iberian peninsula and across to southwest France.  Almost uncontrollable wildfires have devastated thousands of acres, and one observer pilot flying too close has been killed reports the BBC.  The fires in La Teste-de-Buch and south of Bordeaux have destroyed 25,000 acres.

In Portugal, 75,000 acres have been devastated by fires this year.  One cause is the dry heat and soaring temperatures, drying out the countryside.  They have hit 47C (117F) in Portugal and above 40C (104F) in Spain.  Residents have been evacuated from the danger areas and a pet rescue operation is ongoing.

Planes are dropping fire retardant chemicals, and helicopters collect sea water from the coast then return to douse the flames.  The high temperatures, the drought and their consequences have not spared neighboring countries.

In Italy, the country’s longest river, the Po, has diminished to a trickle in places and the tinder-dried countryside in its valley is under a state of emergency.

Along other parts of the Mediterranean, the conditions are similar.  In Greece, there are fires southeast of Athens about 30 miles away in Feriza; also on the northern coast in the island of Crete where seven villages near Rethymno have been evacuated. 

The opposite side of the Mediterranean has not been spared.  Fires swept through several provinces in Morocco and one village in the Ksar el-Kebir area was destroyed. 

According to James Lovelock’s Gaia hypothesis, the earth should respond naturally to ameliorate global warming.  Unfortunately, human interventions like cutting down forests have damaged its ability to do so.  Is runaway global warming then our future?

The answer has to lie with the same humans, being the only species with the knowledge and faculty to respond to the challenges.  The means are available, from CO2 capture to altering our own behavior.

Work on additives (like oil and fats) for cow feed have helped reduce emissions by 18 percent in Australia where almost 70 percent of greenhouse gas emissions come from ruminants.  Even more promising has been the addition of seaweed which when mixed in small quantities (3 percent) to the diet have reduced their emissions by 80 percent.

In the meantime, we have to change our ways:  Growing our own vegetables — delicious and easy as they grow themselves with minimum care … and have you tried ripe tomatoes fresh from a vine?  Even easier to buy now as plants are sold at food supermarkets.

Eating less meat, walking or cycling instead of driving for short trips and so on.  It is easy and just a matter of habit.  In the end, it is up to us as to the kind of earth we want to leave behind for our children and grandchildren. 

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Interviewing Fabio Domenico Vescovi – Agronomist and Earth Observation Specialist

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Fabio Domenico Vescovi is an Agronomist & Earth Observation Specialist. He is currently Senior Data Scientist & Technical Lead at Cropin. Fabio develops applications of satellite technologies in tropical countries for the insurance sector (drought and floods). He studies crop biophysical parameters to inform an index-based insurance system and develops AI algorithms based on DataCube and Machine Learning. Fabio has had an international career spanning Germany (Bonn University), Italy (OHB) and UK (Airbus). He has also been deeply involved in various African countries, working with different stakeholders to enable easier data-based access to micro-credit and micro-insurance for farmers. Fabio has a PhD in remote sensing applications in agriculture.

You are using satellite data to track droughts and floods to grow crops more efficiently. Which other companies are doing this globally? 

At Cropin we use satellite data along with other types of data such as weather data, soil information, agro-climatic conditions, seed genetics, global crop sowing and harvesting patterns, agronomics etc. to create AI models that bring predictive intelligence to agriculture and make it more efficient, productive, and sustainable.

There are a host of organisations in this sector offering services which target this challenging area. We believe that the challenges faced by this sector are many and complex and not one player can solve them all and thus a thriving global agritech ecosystem is a great enabler to truly accelerate progress of the agriculture ecosystem. The industry itself is at an evolving phase and technology adoption in the global agriculture arena is still a long way to go. Arable land across the planet is estimated to be 1.4 billion hectares and in terms of being able to digitize and impact the planet’s agri-value chain, the agritech sector is still miles away, but we sure are headed in the right direction.

Why are you passionate about the agriculture sector? What has inspired you to be a part of this field? 

My family and ancestors were all Italian farmers and despite growing up in an urban environment I always had a passion for environmental sciences, agriculture and the socio-cultural connections between our environment, our people and myself.

Tech-enabled services for farmers can be unaffordable for many farmers in a country like India. Do you think India can implement them at a mass scale? 

We are very aware that farmers will face challenges to afford high-end digital and predictive intelligence solutions which brings a meaningful difference to their lives. This is the reason Cropin works via a B2B and B2G business model. We work with large food processing companies, food retailers, seed and agri-input manufacturers, agri-lenders and insurers, governments and development agencies who in turn work with huge numbers of farmers and large areas of farmlands. So, the cost of the technology is borne by our customers and the benefits of higher efficiency, improved yields, lower inputs costs and better sustainable operations benefit all the stakeholders including the farmer. Another important benefit of our B2B and B2G approach is that it also helps us create impact at scale in global agriculture vis-à-vis working directly with individual farmers.  

What is Carbon farming? Which countries is it being implemented in? 

Carbon farming is a new term but an old practice. I think that people practiced Carbon farming since the time agriculture was invented. One of the simplest examples of Carbon farming is the circulation of organic matter in the form of manure from the stall to the soil. In turn the soil provides food to the animals in the stall. There were many similar Carbon cycles and sub-cycles across people and cultures, where organic matter was recirculated and eventually regenerated.

Nowadays this circularity in Carbon has been slowly destroyed by a mixture of industrial and commercial processes, which though very productive, are not sustainable for the environment.  Just to give you a negative example, Europe is a strong importer of soya, sunflower, and cereals from Brazil, which is now clearing their forests and depleting their soil organic matter to farm these products. However, there is no process in place to return that Carbon from Europe to Brazil to the soil from where it was taken. Only money is returning. We were able to put in place a system which is perfect economically but unsustainable ecologically. Like in a bank, what the soil gives us is a loan, not a donation.

How can AI be used for sustainable agriculture? 

Digitization and AI can be leveraged at scale to increase efficiency, productivity, and sustainability in farming. To leverage AI for farming, Cropin undertakes the complex process of ‘agri asset computation’ which brings together satellite imagery, historical and forecasted weather data, soil information, agro-climatic conditions, seed genetics, global crop sowing and harvesting patterns, agronomics, and other farming insights all under one umbrella to build knowledge graphs for hundreds of crops and crop varieties across the globe. This data is then used to build AI models for any farm plot, region, country, or crop in the shortest possible time. This provides insights and recommendations on various aspects of farming operations – from selecting the right crops and seeds, the right time for sowing and harvesting, the optimal use of water resources and adoption of the right farming practices etc. All this enables much more sustainable farming.

At Cropin, we have already computed 0.2 billion acres of farmland in 12 countries, and we have an ambitious target to compute and build predictive intelligence “on-tap” for 1/3rd of the planet’s cultivable lands by 2025. By doing this, we are helping solve planet scale challenges such as food security, environmental sustainability and better livelihoods for farmers.

How can farmers be empowered globally? 

Farmers are supposed to be the most empowered category in the world, they should dominate even kings, like for example in the American and French revolutions. But the world has become oblivious to this. People forget about farming and the role of farmers, especially the small holder ones. Nowadays if you ask a European child: “Where does this milk come from?”, the answer you may get is: “Well, from the fridge!”. So, milk is perceived as an industrial product and this is ironically not wrong, because the number of industrial processes occurring on every drop of milk from milking to drinking is overwhelming. So, behind a common farm or diary product, we do not see a natural environment anymore but rather a complex system of industrial procedures.

Farmers can be taken onboard of the political arena only if they speak the language of marketing, behave like industrial entrepreneurs, have the knowledge of engineers, act like politicians and talk like salesmen! How can we figure out the farmers role in a complex society which forgotten the importance of farming?

Even in climate change, the only ones empowered to make a significant change on millions of hectares are the small holder farmers. They can play a key role in agro-forestry and Carbon sequestration, much more than any other industrial process. But they are not aware of the processes and of their potentials, and neither is society. We need an educational process involving both agricultural and industrial sectors to raise awareness on their potential.

Finally, a personal question – Is doing a PhD and life as a researcher fulfilling? 

It is, but I must accept that the academic context of a PhD and the lifestyle of a researcher moving across various countries to attend congresses are so different than the cultural context and environmental conditions of a farm. I can’t simply mix the lifestyle of a farmer and that of a researcher. Anyway, whenever I try to do so or I spend some few days in a family-run farm in an African context (e.g. currently I am writing from a small holder farm in Mwingi, a rural area in central Kenya, not even completely electrified) then I get the best results of my research and I grow in the knowledge of how the farming world really is, when we speak about farming, even Carbon faming. My lovely farmers and I dream to raise our common voice and bring awareness on the real role which farming and research can play together: my PhD is not a barrier, it is the way to open my mind to their culture and learn more.

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