COP28, held in Dubai in 2023, served as a crucial catalyst for climate action in the Middle East and North Africa (MENA). With governments setting ambitious climate targets and both public and private sectors taking significant steps, the region’s momentum toward environmental sustainability is gaining ground.
Approximately 70% of MENA’s emissions now fall under net-zero pledges, up from 60% two years ago. The private sector has also seen notable advancements, with around 46% of large companies in the region implementing initiatives to manage their emissions and 41% disclosing Scope 1 and Scope 2 emissions.
However, while large businesses are driving decarbonisation efforts, smaller suppliers and small and medium-sized enterprises (SMEs) are lagging. This gap poses a significant challenge to realising the region’s climate goals.
To turn the ambitions sparked by COP28 into tangible results, robust climate transition plans must be implemented across the entire value chain, ensuring that SMEs are not left behind.
SMEs In The Climate Transition
SMEs play a vital role in the region’s economy, contributing between 20% and 30% of MENA’s GDP on average, and employing between 35% and 55% of the workforce. In Egypt, this number climbs to more than 75%.
Despite their economic significance, SMEs face substantial challenges in adopting decarbonisation strategies. Many of these businesses lack the knowledge, resources, and financial capacity to effectively reduce their carbon footprints.
Addressing emissions from SMEs is crucial for decarbonisation. Most global emissions come from Scope 3 emissions, which are generated across the entire value chain. To meet national net-zero pledges, organisations must reduce emissions beyond their operations and extend their efforts to their suppliers and partners, many of which are SMEs. Without a focused effort on this front, the region risks falling short of its climate goals.
Barriers To SME Decarbonisation
SMEs in the MENA region face several roadblocks in their decarbonisation efforts. One of the most significant barriers is a lack of awareness. Many SMEs and their leaders are not sufficiently informed about the importance of decarbonisation or the potential financial benefits it can bring. Lack of technical expertise to implement efficient decarbonisation strategies frequently makes this knowledge gap worse.
Financial constraints also play a major role in holding back SME decarbonisation. Many smaller businesses struggle to secure the necessary funding to prioritise, plan, and execute decarbonisation initiatives. Limited stakeholder and regulatory pressures further exacerbate the issue, as the perceived value of decarbonisation remains low in many cases.
For the MENA region to achieve its climate goals, stakeholders across the value chain, both public and private, must work together to support SMEs in overcoming these challenges.
Encouraging Signs Of Progress
Despite the barriers, there are promising developments in the region that offer a path forward for SMEs looking to decarbonise. Some of the region’s leading companies are setting an example through best practices that could inspire other businesses to take similar action.
For instance, Aramco has launched the Taleed programme, designed to accelerate SME growth in various areas, including decarbonisation. Through this programme, Aramco provides SMEs with the necessary resources for capability-building, strategy development, and funding. Additionally, the company offers broader financial solutions through major national funds, with a combined capital of over USD 800 million, aimed at supporting SME decarbonisation efforts.
Aramco is also involved in a joint venture with Linde and SLB to build a carbon capture and storage hub in Jubail, Saudi Arabia. This hub will provide shared CO2 transport and storage infrastructure for SMEs and other industrial emitters, allowing them to overcome financial and technological barriers while working toward their net-zero goals.
In the retail sector, Majid Al Futtaim has implemented a sustainable procurement policy that promotes the use of locally sourced materials and prioritises suppliers with sustainable offerings.
This policy shortens the supply chain and helps the company adapt to new consumer behaviours that favour environmentally friendly products. Majid Al Futtaim is also part of the CDP supply chain programme, which collects and analyses environmental data from its suppliers, enabling the company to support emission reduction initiatives more effectively.
Moreover, Saudi Arabia recently launched the Sustainability Champion programme during the World Economic Forum Special Meeting in the country. This initiative fosters cooperation among leading companies through capability-building and best practice sharing, fast-tracking their adoption of sustainability principles. As part of the programme, sustainability champions commit to changing the practices of three other Saudi companies, creating a ripple effect across the local economy.
Government Support Is Crucial
While private sector initiatives are vital, government intervention is essential to scaling decarbonisation efforts across the region. Governments can play a pivotal role in incentivising and financing the transition to resilient and sustainable value chains. Regional policies are starting to catch up to more mature regions like the European Union, but there is still much work to be done.
To support SMEs, governments can introduce policies that encourage collaboration across the value chain, promote technological innovation, and build the necessary infrastructure. Additionally, governments can provide financial incentives and regulatory frameworks that make it easier for SMEs to adopt sustainable practices and decarbonise their operations.
Building A Sustainable Future
Resilient and sustainable supply chains are key to the MENA region’s ability to meet its climate commitments and achieve climate-resilient growth by 2050. The region’s unique challenges and opportunities offer a chance to build on the momentum from COP27 and COP28 and increase innovation and climate resilience.
Collaboration between the public and private sectors is essential to achieving this goal. By investing in transformative practices and bridging gaps in financing, innovation, and risk-taking, stakeholders across the value chain can help SMEs play their part in the decarbonisation journey. Through these efforts, the MENA region can make significant strides toward meeting its net-zero commitments and creating a more sustainable future.