How the Finance Function Powers the Green Economy

Imad Adileh
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Similar to various other countries globally, Saudi Arabia is pursuing a shift towards a sustainable economy to decrease its dependency on fossil fuels and alleviate the consequences of climate change. The nation has established challenging objectives to elevate the portion of renewable energy in its energy blend, diminish its carbon emissions, and encourage sustainable growth. Accomplishing these goals necessitates substantial investments in green infrastructure, technologies, and innovation, and the finance sector will have a vital role in facilitating this transition.

Saudi Arabia has acknowledged the potential of the green economy in facilitating economic diversification and reducing its reliance on oil exports. The Vision 2030 plan, which outlines the country's long-term developmental approach, has targeted to generate 50% of its electricity from renewable sources by 2030. To achieve this objective, the Saudi government has implemented multiple initiatives, including the National Renewable Energy Program and the Saudi Green Initiative, to promote the adoption of renewable energy.

In addition to the finance function, the Chief Financial Officer (CFO) must also adapt to integrating the country's green economy objectives into their responsibilities. This involves acquiring a comprehensive understanding of the green economy and its influence on the organization's financial performance. In essence, both the finance function and CFO are urged to prioritize the following:

Investment strategy: evaluate the financial impact of green investments and ensure they align with the organization's overall investment strategy. This includes evaluating the risk-return trade-off of green investments and providing they generate positive returns while contributing to the organization's environmental and social objectives.

Financial reporting: ensure that the organization's financial reporting framework includes environmental and social performance metrics that align with the green economy objectives of Saudi Arabia. This includes integrating sustainability reporting into financial statements and ensuring that the organization's financial performance is measured in terms of both financial and non-financial metrics.

Risk management: identify and manage the financial risks associated with green investments, such as regulatory changes, technology obsolescence, and reputational risk. This requires a comprehensive understanding of green investments' environmental and social risks and the ability to integrate them into the organization's overall risk management framework.

Capital allocation: ensure that the organization's capital allocation decisions consider the long-term financial and environmental impact of green investments. This includes evaluating green investments' financial and non-financial benefits and ensuring they are prioritized in the organization's capital allocation decisions.

Stakeholder engagement: engage with a wide range of stakeholders, including investors, regulators, and customers, to ensure that the organization's green investments align with their expectations and contribute to the overall sustainability objectives of Saudi Arabia. This includes communicating the financial and non-financial benefits of green investments and ensuring stakeholders know the organization's commitment to sustainability.

In summary, the green economy provides a significant opportunity for Saudi Arabia to achieve its economic, social, and environmental goals. The finance function, including the CFO, can play a critical role in facilitating the transition to a green economy by mobilizing capital, ensuring financial viability and sustainability, monitoring environmental and social impact, and incorporating green investment objectives into financial decision-making. Through these efforts, the finance function can help Saudi Arabia achieve its vision of becoming a sustainable and prosperous nation while contributing to developing the green economy.