Bain & Company, in collaboration with the World Economic Forum, shares the urgent need for comprehensive climate transition plans that encompass the entire value chain, emphasizing the pivotal role of small and medium-sized enterprises (SMEs) and suppliers in the Middle East and North Africa (MENA) region in their latest agenda blog titled, “How MENA’s Biggest Actors Can Help the Region’s Suppliers and SMEs to Decarbonize.”
Following COP28, held in Dubai last year, there has been a wave of climate action across the MENA region. Governments have set ambitious climate targets, and approximately 70% of the region's emissions now fall under net-zero pledges, a notable increase from 60% two years ago. Leading large businesses are spearheading decarbonization within their operations, with 46% of large companies in the MENA region managing their emissions and 41% disclosing their Scope 1 and Scope 2 emissions.
Despite this progress, small and medium-sized enterprises (SMEs) and suppliers, which constitute over 90% of the region's businesses and employ a significant portion of the working population, are lagging in their decarbonization efforts. Addressing this gap is crucial, as SMEs contribute 20%-30% of the region's GDP and are integral to the economy’s stability and growth.
Barriers to Decarbonization
SMEs and suppliers face several barriers to decarbonization. These include a lack of awareness and insufficient leadership attention towards decarbonization, as well as knowledge gaps related to the financial and technical aspects of implementing decarbonization practices.
Additionally, there is a limited perceived value of decarbonization due to minimal stakeholder and regulatory pressures. Financial constraints also play a significant role, hindering the funding of decarbonization initiatives.
Akram Alami, Partner and Middle East Head of Aviation, Utilities, and Sustainability & Responsibility practices at Bain & Company, underscored the importance of addressing these challenges, “Supporting SMEs and suppliers on their decarbonization journeys is not just an environmental imperative but an economic necessity. These organizations are the backbone of our economy, and their transition to sustainable practices will determine the success of our regional climate goals.”
Promising Developments and Best Practices
Encouragingly, several initiatives are emerging to support SME decarbonization. Some members of Leaders for a Sustainable MENA, the World Economic Forum’s community of public and private-sector leaders are pioneering best practices in climate resilience.
For instance, Aramco’s Taleed programme, accelerates SME growth in decarbonization by providing capability-building, strategy development, and funding. Moreover, Aramco, in partnership with Linde and SLB, is developing a carbon capture and storage hub in Jubail, Saudi Arabia, to assist SMEs and other industrial emitters in overcoming technological and financial barriers.
In the retail sector, Majid Al Futtaim’s sustainable procurement policy promotes local sourcing and supports suppliers with sustainable offerings. Additionally, their participation in the CDP supply chain programme enables the collection and analysis of environmental data, aiding suppliers in reducing emissions.
Additionally, during the World Economic Forum Special Meeting in Saudi Arabia, the Kingdom introduced the Sustainability Champions program. This initiative aims to promote collaboration among top companies by enhancing their capabilities and sharing best practices, thereby accelerating their adoption of sustainability principles and reporting.
Government interventions also play a crucial role. Saudi Arabia, through Monsha’at and the Saudi Green Initiative, supports SME decarbonization with substantial funding. The UAE’s Abu Dhabi Global Market (ADGM) has developed a regulatory framework for sustainable investment funds, while Egypt mandates ESG disclosure reports for companies listed on the Egyptian Stock Exchange.
Raja Atoui, Partner and member of the Energy & Natural Resources and Sustainability & Responsibility practices at Bain & Company stated, “Government interventions are essential to create an enabling environment for SMEs to transition to sustainable practices. Policies and funding must align with the broader climate goals to foster innovation and resilience in our value chains.”
The Path Forward
Achieving climate-resilient growth in the MENA region necessitates collaboration across the entire value chain. Technological innovation, infrastructure development, and capability-building are critical components. Integrating local supply chains with global expertise will be pivotal in bridging the gaps in financing, innovation, and risk-taking.
As the region builds on the momentum from COP28, partnerships between the private and public sectors will be instrumental in meeting net-zero commitments by 2050. Bain & Company is committed to facilitating these collaborations, ensuring that SMEs and suppliers are not left behind in the region’s decarbonization journey.
