Keeping Climate Central: Embracing sustainable solutions and ESG frameworks

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Jessica Wong, founder, and managing partner of growth-stage VC fund eWTP Arabia Capital shares her views on the importance of sustainability, climate action, and ESG in startups in the MENA region

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Published: Thu 23 Nov 2023, 2:38 PM

Last updated: Fri 24 Nov 2023, 8:47 AM

1.When we talk about sustainability in the corporate sector, what opportunities and challenges does it present for venture capital investors?

Sustainability presents both opportunities and challenges for VC investors. On the positive side, there is a growing market for sustainable technologies, products, and services. Investors have a chance to support innovative companies that are addressing climate change, and environmental issues and understanding the long-term values of nature-based solutions. However, this sector also comes with enhanced accountability, risks, and uncertainties, such as varying regulatory commitments, evolving consumer preferences, and long development cycles. VC investors need to assess these factors carefully and have a deep understanding of the sustainability market as well as related regional and international policies to make informed decisions.

2.How can venture capital firms promote sustainability and climate action within their portfolio companies?

We know from the latest climate change trends and impacts on people’s lives, that Climate Action can no longer be avoided. The VC firms can thus play a significant role in promoting sustainability within their portfolio companies by setting clear sustainability goals and expectations, that are consistent and measurable with the goals of the Greenhouse gas emissions (GHG) reduction of the legally binding Paris Agreement signed by 196 governments. They must comply with those goals, and they cannot do so without the private and financial sectors involved. VCs need to encourage startups to adopt environmentally responsible practices, monitor their environmental impact, and work towards achieving sustainable business models. VC firms can also provide resources, mentorship, and networks to help portfolio companies navigate the sustainability landscape. Additionally, they can leverage their influence to advocate for sustainable policies and practices in the industries their portfolio companies operate in, thus contributing to a broader positive impact on climate change and sustainability.

3.How does having an Environmental, Social, and Governance (ESG) framework benefit startups?

VCs and impact investors are increasingly looking for startups that adhere to international ESG principles and safeguards. Having a strong ESG framework makes it easier for startups to attract funding and it gives companies a competitive advantage by appealing to socially conscious consumers. It also aids in risk management by approaching environmental and social risks early on to avoid future regulatory issues or reputational damage that can affect their long-term viability.

From a startup perspective, ESG can drive innovation in the entrepreneur ecosystem, leading to products and services that could contribute towards a more sustainable future for the planet. So, these ESG considerations are becoming increasingly important for startups, affecting their ability to secure funding and also helping them differentiate themselves from their competitors in the market.

4.How is the ME VC market addressing climate and sustainability goals?

The Middle East VC market is increasingly focussing on climate and sustainability goals by investing in startups dedicated to renewable energy, water conservation, and sustainable technologies to reduce their GHG footprint and limit global warming to 1.5 degrees Celsius by 2050. Governments in the region are also promoting initiatives to attract green investments and support sustainable development. The Middle East region is focussing heavily on climate and sustainability as a region heavily impacted by extreme climate events such as drought and floods, and as hosts of COP28, the UAE is leading the path for many companies to actively engage in activities that are climate-conscious and will benefit the generations to come. This region has seen startups grow in sectors like energy and solar solutions, waste management, and how to use desert soil to create fertile agricultural soil. With strong involvement from the public and private sectors alike, we expect to see the transformation growing to include several companies that will contribute significantly to the sustainable growth of the region.

As a growth-stage VC that invests heavily in companies in the MENA region, we have seen how committed governments are to helping the youth and women leaders carve a niche in sectors that are up and coming, or those that have remained untapped. We believe that climate and sustainability will continue to take centre stage in the years ahead, ably backed by companies like ours and enabled by laws and governments that are fully committed to creating a greener future.

6.What are some of the biggest investment trends we can expect to see in the year ahead?

The investment landscape is constantly evolving and always considering the current situation across the globe. Climate and sustainability are two topics that constantly find interest from investors. Green technology that encompasses innovations in renewable energy, energy efficiency and eco-friendly practices is gaining substantial attention from investors seeking both financial returns and leaving a positive environmental impact. Carbon markets, driven by a strong sense of urgency to combat and adapt to climate change are also emerging as platforms where companies can trade carbon credits and look towards emission reductions. Sustainable infrastructure investments are rising, reflecting a commitment to develop projects that provide long-term environmental benefits like solar parks and smart cities. And of course, there is impact investing where investors look beyond just financial gains to create a tangible, positive impact on society at large and the environment. Together these trends indicate a growing recognition across all sectors to incorporate sustainable and responsible investment practices that will contribute towards creating a more resilient and environmentally-forward global economy.

7.How do China and the Middle East region cooperate in ESG, and what has eWTP Arabia Capital done to facilitate the same?

The Middle East and China share common goals and demands in the ESG field. By actively participating in ESG enterprises and policies, they aim to promote economic growth while achieving high-quality development of the ecological environment protection and improvement of people's lives. The Middle East and China also share common goals in promoting the proportion of green energy, achieving energy saving and emission reduction, jointly facing climate change, protecting biodiversity, focusing on local labour rights, and supporting small and medium-sized enterprises.

In recent years, China has been actively promoting the ‘Belt and Road’ initiative. Through this initiative, ESG companies in China have eagerly participated in the local economic and social construction in the Middle East, continuously promoting high-quality co-construction with local governments, enterprises, and organizations. Under the initiative of the ‘Belt and Road’, companies such as the China Railway Construction Corporation participated in the Lusail Stadium project for the Qatar World Cup, improving environmental management and enabling technological progress while China National Building Material Group's cooperation with Egypt to promoted local employment drove industrial development.

These collaborations not only reflect China's active promotion of ESG cooperation and development in the context of globalisation but also align with the Middle East's drive for economic transformation and realisation of ESG goals.

eWTP Arabia Capital, based on the cooperation initiative of China's ‘Belt and Road’ and the era of the Middle East's reform, also promotes deep cooperation in the ESG field through its investment efforts. In sectors like cloud computing, enterprise services, and e-commerce logistics It brings digital technology to the Middle East, helps build digital infrastructure, and participates in the transformation of the local digital ecosystem, creating a large number of jobs in the field of technological innovation.

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