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UAE poised for massive upsurge in carbon trading with Middle East market to hit $40bn by 2030

Q&A with Arabian Business

By Nameer Khan, CEO, Fils

Tell us the founding story of Fils – where is it based, what drew you to start a company in the sustainability sector?

My aim was to establish an infrastructure dedicated to doing good and fostering a regenerative ecosystem. Based in Dubai, Fils is a comprehensive B2B2C offering – it’s an enterprise-grade digital infrastructure that enables businesses of all sizes to embed sustainable and climate action into their business model and customer journeys across industries –  including financial services, hospitality, e-commerce and other industries. 

This simplifies the integration of ESG values for businesses, marking a significant step towards trustworthy and efficient carbon market operations. We’re essentially striving to ensure that the infrastructure developed by Fils and its future iterations become pivotal in advancing the emerging industry. It’s not just about us; it involves numerous entities like us joining forces to become catalysts for achieving net-zero targets. Our platform aims to make the planet more habitable for all its inhabitants. This vision of regeneration and enhanced livability was our starting point and remains our guiding principle.


Which markets do Fils operate in?

Fils is based in Dubai and London, with a truly global focus. The majority of our current partners are located throughout the Middle East, but we will be announcing partnerships spanning the European, African and APAC markets in the coming months.


Fils has signed a fair few partnerships since its launch in November last year. Why are large organisations in the Middle East paying more attention to their impact on the environment?

I believe large organisations in the Middle East are increasingly focusing on their environmental impact due to the region’s high vulnerability to climate change’s effects – the Middle East is among the regions most likely to experience severe impacts. With so much at stake, it aims to be at the forefront of climate action. Recognising an urgent need for action – in 2023, nearly 80% of companies in the Gulf Cooperation Council (GCC) had implemented an ESG strategy, marking a significant increase of over 15% compared to five years before. The region is now taking a leadership role in the fight against climate change, with the UAE committing to achieving net-zero emissions by 2050, and Saudi Arabia pledging to achieve the same in 2060. Even more important is the region’s investments in the technology and entrepreneurs enabling this economic and cultural transformation, as Middle East investments into climate tech increased almost 200% in the year to the end of September 2023.


What could be the current market size for the sustainability infrastructure segment in the Middle East currently, and where is it expected to reach, say, in another 5 years?

The sustainability infrastructure segment in the Middle East is expected to see increased investment over the next few years. There are ambitious projects and a push towards private financing, showing a commitment to modernising society and achieving sustainability goals. Specifically, a report by PWC on Middle East Capital Projects and Infrastructure showed that over a fifth of organisations (23%) identified environmental/sustainability as the functional skills in greatest demand.


Most of our readers don’t interact with the voluntary carbon market – run us through why it’s an important marketplace and its potential for limiting climate change.

The voluntary carbon market is not mandated by government regulations but plays a crucial role in addressing climate change by allowing entities to offset their emissions voluntarily. This is often pursued for reasons such as corporate social responsibility or to enhance an environmentally responsible reputation. 

Unlike the mandatory (compliance) markets, which are regulated by governments and include legal obligations to meet emission reduction targets (e.g., the European Union Emission Trading Scheme, where exceeding emissions can cost significantly), the voluntary market offers a flexible platform for companies and individuals to contribute to the reduction of greenhouse gases beyond regulatory requirements. This flexibility and voluntary participation are what make the voluntary carbon market an important complement to mandatory carbon markets in the global effort to limit climate change.

 

What is the current state of the carbon trading market in the UAE/Middle East and how fast is it evolving into a mature market?

The carbon market scene in the UAE and Middle East is really picking up speed. In Saudi Arabia, the establishment of the Regional Voluntary Carbon Market Company (RVCMC) by the kingdom’s Public Investment Fund and the Saudi Tadawul Group Holding Company marks a substantial move towards expanding the voluntary carbon market. This initiative is aimed at fostering sustainable business practices and encouraging climate action across the region.

In the UAE, the Abu Dhabi Global Market (ADGM) set up ACX in September 2022,  the world’s first fully regulated voluntary carbon trading exchange and clearinghouse. This platform is designed to facilitate the trading and financing of carbon credits in a manner similar to conventional financial assets, underpinning the UAE’s commitment to attracting sustainable investments and achieving its net-zero emissions goal by 2050. Together, these developments indicate a rapid maturation of the carbon trading market in the region, highlighting a strong commitment to environmental sustainability and climate action


What is the estimated current market size, and where is it expected to reach, say, in the next 3 -5 years?

By 2030, the voluntary carbon market is poised to grow fivefold from its 2021 valuation of $2 billion, reaching an anticipated $10-40 billion. This expansion signifies a robust engagement from various sectors to meet the urgent demands of climate action, leveraging carbon trading as a pivotal tool for offsetting emissions.

Globally, the surge in carbon market value to a record $851 billion underscores the pivotal role of major trading systems like the EU’s Emissions Trading System, which commands a majority of this market share. This growth trajectory is further supported by the introduction of new trading schemes in regions such as China and Britain, alongside advancements in North American markets. These developments reflect a broader, global commitment to using market-based mechanisms to drive down emissions; which I personally find very encouraging.


Who are the major players currently, and is the market seeing entry of more players?

To be honest, the sustainability infrastructure market in the Middle East is seeing a lot of activity from both traditional heavyweights and new entrants. Financial institutions like UAE-based Mashreq, for example, are expanding their offerings to include carbon offsetting financial products. This kind of development shows there is a growing market with diverse players and an expanding ecosystem where both established firms and newcomers are driving climate action.


Which are the major industry sectors/companies which are participating in carbon trading in the UAE currently?

There are quite a few – but to start with, in the UAE, there’s a coalition of companies and financial institutions leading the development and participation in the carbon trading market. The UAE Carbon Alliance, set up by the UAE Independent Climate Change Accelerators (UICCA), includes AirCarbon Exchange (ACX), First Abu Dhabi Bank, Mubadala Investment Company, Abu Dhabi National Energy Company, and Abu Dhabi Future Energy Company. This alliance aims to foster a green economy transition in alignment with the UAE’s Net Zero by 2050 Strategic Initiative.


What about the regulatory system for this market in the country and what, according to you, is/are needed more to further expand this market?

As mentioned above, the UAE is stepping up its game in the carbon market, aiming to be a trailblazer with Abu Dhabi launching the world’s first fully regulated carbon trading exchange and clearing house. This move is part of a broader push to get companies on board with trading carbon credits like they would any other financial asset, diving deep into the fight against climate change. 

Also, the UAE’s Securities and Commodities Authority is working on developing a carbon-trading mechanism that could make a significant dent in the country’s carbon footprint. It’s a big play in the global effort to cut emissions, and with these initiatives, the UAE is positioning itself as a key player in the green economy. I believe this could be a game-changer, not just for the UAE but for carbon markets worldwide.


Finally, how optimistic are you about humanity’s chances of keeping global warming below a 2° increase from pre-industrial times?

I’m riding a wave of hope here! The global commitment to tackling climate change has never been stronger. With countries ramping up their renewable energy game, investing in green technologies, and citizens worldwide pushing for more sustainable lifestyles, there’s a genuine shot at keeping that temperature rise in check. 

Yes – it is a race against time, but momentum is building. It is not just about optimism; it is about action. With every breakthrough, policy shift, and fintech innovation, we are getting closer to that target. 


Please add any other relevant/additional info which can add value to the story.

Fils’ journey began ambitiously in 2022 with a clear vision and foundational goals. We quickly brought on board key leaders and officially launched in 2023 ahead of Cop28. Our early efforts paid off, allowing us to partner with some of the region’s most prominent organisations. This includes international leaders in digital payments and prominent acquirers in the region. Our early adoption of blockchain technology, exemplified by our partnership with Sui, further solidified our innovative approach.

Our vision was also to solve the problem of carbon markets. We know that the carbon market is a major catalyst that is going to move the needle towards enabling capital flow towards leading projects that are making an impact However, the lack of transparency, accountability, and traceability in this area was a significant challenge. To overcome this, we collaborated with key players like Three and partnered with globally renowned banks. This enhanced our credibility and marked our rapid evolution into one of the most promising sustainable fintech organisations in the world today.

Our merchant and customer base has expanded exponentially. Today, we provide access to millions of merchants and support hundreds of companies eager to make a broader impact. Our platform lists over 80 projects backed by our credible partners, demonstrating our commitment to fostering sustainable solutions. Learn more: www.filsnow.com