Sustainable Finance: Here's How Startups Can Excel In The Emerging Green Economy Of The UAE And The GCC Region We are witnessing a growing number of innovative startups in the sustainability ambit seeking funding to sustain their strategy and growth.
By Roberto d’Ambrosio •
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As the awareness of the challenges posed by the environment being deeply affected by human activities is growing exponentially all around the world, changes are inevitable in how business is conceived, initiated, and managed. And this has a particular significance for startups that focus on new technologies and sustainability, which are increasingly looked at as a leading strategic segments for the future by business leaders around the world.
This is a very clear global trend, with a remarkable presence in the GCC and Middle East, with the regions having recognized the importance of a sustainable approach to growth and development, as well as of the need to create a supportive environment for startups. As a consequence, we are witnessing a growing number of innovative startups in the sustainability ambit seeking funding to sustain their strategy and growth. Meanwhile, the leadership in the region has clearly declared its commitment to diversify the economy away from the dependency of commodities like oil, and to look at sustainability as one of the main pillars for future economic growth.
Within such a strategic approach, startups need access to relevant funding in order to raise above the ever-increasing competition, adequately leveraging the initiatives and eased policies that are being introduced to facilitate funding opportunities for startups, and to attract investments in the sustainability space. As such, there are a number of approaches for startups to take advantage of the actions put in place by governments across the region, which are being enacted through various initiatives and policies.
As an example, we can look at the Green Agenda initiative in the UAE, which also established the Sustainable Finance Working Group, that is designed to promote and encourage environmentally friendly practices and investments, and to align the financial sector with sustainability objectives, and thereby create a conducive environment for green startups to attract funding. At the same time, the GCC countries, collectively, are working on the GCC Framework for Sustainable Development. This framework focuses on supporting sustainable projects and businesses, creating a favorable investment landscape for green entrepreneurs.
In such an environment, startups need to have the adequate expertise, possibly growing an internal specialized team, to follow up on all the development in the everchanging landscape of governmental new policies and incentives, in order to take full and early advantage of such opportunities, and adapt their strategies accordingly. The creation of internal dedicated expertise is a crucial factor for funding-hungry startups, and it is also applicable to all the other opportunities we will be looking at in this article.
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Another funding opportunity is provided by investment funds and accelerators, which are organizations dedicated to providing financial support and mentorship to green startups. In the UAE and the GCC, we have witnessed a rise in the number of sustainability-focused investment funds and accelerators, like the UAE-based Global Ventures, which has a dedicated sustainability fund, and the Mohammed bin Rashid Al Maktoum Foundation's innovation fund for sustainable development. As for accelerators, we can mention Flat6Labs and Sharjah Entrepreneurship Center (Sheraa) in the UAE, whose programs offer seed funding, workspaces, mentorship, and networking opportunities for entrepreneurs looking to make a positive environmental impact.
One of the hurdles that all players within the sustainability space face is dealing with regulations, an endeavor that becomes more and more challenging as the approach is multinational or even global, given the lack of coordination and alignment of the different approaches to regulating the business in different areas. It is therefore very important to clearly define the localization of the infrastructure and that of the target market, so as to avoid serious issues in the implementation phase.
In approaching this matter, in is important to determine under which regulatory framework to operate, making sure to select those that encourage sustainability, and in the UAE and the GCC, the regulatory environment is evolving to support sustainability-focused businesses. In this area, regulatory support for renewable energy initiatives, such as solar and wind power, as well as electric vehicles, is creating opportunities for green startups specializing in clean energy technologies. The availability of feed-in tariffs and other incentives for renewable energy projects can also attract investors and stimulate growth in the sector.
Another crucial element is scanning for favorable "green" financing standards. The Central Bank of the UAE has issued the Green Finance Framework, which provides a framework for banks and financial institutions to assess and allocate funds to environmentally friendly projects. This framework makes it easier for green startups to secure financing from traditional banking institutions. While relatively more costly, accessing the liquidity managed by banks is important to adequately manage cash flow and liquidity levels, as well as an inevitable element of a well-balanced funding plan.
Another funding venue is surely the global capital market, to which startups must grow the ability to engage and access, and, therefore, as for the regulatory approach, the localization of the initiative is crucial. Green startups in the UAE and the GCC can leverage their strategic geographical location to secure increased funding. As a matter of fact, the region serves as a bridge between the East and the West, making it an attractive destination for international investors interested in sustainable ventures. By tapping into global capital markets, green start-ups can access a broader pool of investors and partners who share their sustainability goals.
Approaching venture capital is not easy though, and the leadership of startup needs to, on one hand, be able to properly describe the initiative, convey its true innovative nature, and be able to provide sustainable financial success projection, and, on the other end, be able to protect their business from aggressive practices that some venture capitalists might try to impose to funding-starved startups, which might result in them losing their control on the initiative in the end. In a space dominated by bright and extremely young entrepreneurs, approaching venture capital and private equity funding thus requires appropriate expertise and experience, which can be outsourced, but it would be advisable as much as possible to have in house, possibly at board level.
In increasing their palatability to investors, startups should also leverage technology and innovation. Green startups are at the forefront of technological innovation by definition, developing cutting-edge solutions to address environmental challenges. In the UAE and the GCC, these innovations are encouraged and supported through various platforms, such as tech hubs, research institutions, and partnerships with multinational corporations. This support to technological excellence can be a significant selling point when seeking funding, as investors are increasingly drawn to companies that offer innovative solutions to global sustainability issues.
Last but not least, the human resource factor is key. The availability of talents, the ability to retain them, and the possibility to train new generation of highly specialized professionals is another factor that not only is crucial for the very existence of an innovative business initiative in the sustainability space, but it also represents a challenge, given the shallow labor market for such expertise. The Middle East is, however, heavily committed to both attracting the best talent available worldwide by providing one of the most sought-after jurisdictions in which to relocate and thrive. In addition, it is also attracting the best international education institutions to flank to the already excellent local educational offering, so as to foster a new generation of young, specialized professionals.
We can conclude by saying that green startups in the UAE and the GCC region can enjoy a growing support from governments and regulatory bodies, and an environment to operate in that shall give confidence to investors. By properly approaching and taking full advantage of eased policies, embracing sustainability-focused initiatives, and harnessing their innovative potential, green startups can secure the increased funding they need to excel in the emerging green economy. As the world grapples with environmental challenges, the UAE and the GCC region have positioned themselves as hubs for sustainable innovation and investment, making them ideal destinations for entrepreneurs looking to make a positive impact on the planet.
The future looks promising indeed.
