European Union and its Neighbours: Reflecting on the current state of regionalism and multilateralism and its impact on energy, financial markets and capital flows

4 September 2024. As policy makers and financiers look to build on the COP28 agenda and prepare for COP29, DZ BANK AG and INGLOSUS Foundation convened a global virtual summit bringing together 29 leading experts, corporate leaders, and market practitioners from over 15 countries to discuss how global capital markets can become more sustainable, resilient, and inclusive. The summit opened with a welcome and three keynote addresses, followed by five panel discussions, each addressing a different facet of sustainability. Sustainable Global Capital Annual Summit 2024 counted over 500 attendees.

Leaders Call for Stronger EU-MENA Cooperation

Frank Scheidig, Global Head of Senior Executive Banking at DZ BANK AG opened the conference by emphasising the stronger cooperation between the European Union, MENA region and Central Asia: “I call it one-time-zone approach. We should in that respect forget about our borders, stick together and give the world what we are known for: Environmental initiatives and innovative thoughts which we will discuss today.” The Sustainable Global Capital Community is one of the largest mobilisers of sustainable capital worldwide. Founded in 2020, it has grown into one of the world’s leading platforms for Sustainable Finance.

In the first opening keynote address of the conference, Gert-Jan Koopman, Director General for Neighbourhood and Enlargement Negotiations at the European Commission centred his remarks on the EU’s current challenges – security, energy, competitiveness and the green transition. Koopman highlighted the “opportunities for reinforced relations” with neighboring regions and that new strategic partnerships with the MENA region will “boost growth, create jobs, and speed up energy transformation” in both the EU and partner countries.

Prof. Dr. Mahmoud Mohieldin, United Nations Special Envoy for Financing the 2030 Sustainable Development Agenda, gave the second opening keynote speech and emphasised the potential for sustainable growth through regional cooperation, despite current global challenges. He pointed out that by leveraging the comparative advantages of various regions within the EU and its neighbors, a collaborative growth model can be developed. This would involve unrestricted trade, obstacle-free investments, and formal flows of people through tourism and migration, fostering stronger integration. Dr. Mohieldin also stressed the importance of preventing negative spillovers from policies such as the Carbon Border Adjustment Mechanism (CBAM), which could impose costs on both importing and exporting markets, as well as their labor forces. Dr. Mohieldin also highlighted the significance of fair competition and effective partnerships, which could enhance Europe’s economic security while also advancing the sustainable development goals (SDGs) of neighboring regions like the Middle East and Africa.

In the final opening keynote speech, Dr. Wissam Fattouh, Secretary General of the Union of Arab Banks, highlighted the pivotal role of banking in strengthening economic ties between the European Union and the MENA region. Dr. Fattouh emphasized the deep financial integration between the two regions, noting that “European banks have a strong presence in the MENA region, providing crucial financial services, facilitating trade finance, and offering expertise in risk management and regulatory compliance.” While acknowledging challenges such as economic disparities and regulatory divergence, Dr. Fattouh pointed to the MENA region’s economic transformation as an opportunity for deeper collaboration, particularly in sustainable finance, digital banking, and infrastructure investment. Dr. Fattouh outlined five key areas for enhancing these ties, including regulatory harmonization, fintech collaboration, and ESG integration, with the goal of building “a more resilient, inclusive, and prosperous future for both regions.”

While all speakers advocated for stronger EU-MENA cooperation, they approached it from different angles: Scheidig through environmental and innovative cooperation, Koopman through addressing EU-centric challenges, Dr. Mohieldin through sustainable growth and fair competition, and Dr. Fattouh through financial integration and banking sector collaboration.

Strengthening EU Ties with MENA and Eastern Neighbors

The first session explored the evolving dynamics between the EU and its neighboring regions and was moderated by Adam Cotter, Senior Vice President of Senior Executive Banking at DZ Bank.

Prof. Dr. Wadid Erian, Senior Adviser of League of Arab States underscored the historical and cultural ties between the EU and the MENA region, describing the EU as uniquely “politically, economically, and environmentally connected” with its neighbors. He highlighted that recent crises have strained these ties and called for enhanced cooperation in sectors such as “trade, energy, and climate security.” Erian warned that limited EU focus on areas beyond energy and migration could lead to a “gradual separation” from the MENA region.

In contrast, Guido Clary, Head, EIB Regional Hub, North Africa and the Near East, European Investment Bank emphasized the positive aspects of EU-MENA cooperation, showcasing the EIB’s significant investment in the region, including over €20 billion and the development of projects like the MEDUSA submarine cable to “enhance digital connectivity.” Clary’s focus was on the tangible benefits of financial partnerships and infrastructure projects.

Panayotis Gavras, Head, Policy and Strategy of the Black Sea Trade and Development Bank shared a broader regional perspective, noting how the Russia-Ukraine war has intensified the need for stronger EU ties with neighboring countries. He highlighted that while EU expansion faces challenges, the EU should better align with the priorities of its eastern neighbors, such as “security, stability, and prosperity.” Gavras pointed out that the renewable energy boom in Eastern Europe is driven more by economic factors than by environmental concerns.

The first session highlighted a common theme of the need for strengthened cooperation and adaptation to regional challenges, while also showing differing focuses: Erian stressed the need for a more holistic approach to EU-MENA relations, Clary showcased successful financial partnerships, and Gavras emphasized adapting EU strategies to regional priorities.

Enhancing Capital Integration Between the EU, MENA, and Central Asia

The second session focused on the integration of capital markets between the EU, MENA and Central Asia and was moderated by Darius Maleki, Vice-Chairman of INGLOSUS Foundation.

Ruslan Khalilov, CEO of Baku Stock Exchange, and Jochen Metzger, Global Head of Markets at NowCM Group, both highlighted the importance of fostering greater integration between regional financial systems and the European Union (EU) to enhance market efficiency and resilience. Khalilov pointed out that, despite differences in the maturity of financial systems across regions, common challenges – such as regulatory alignment and the need for improved financial literacy – persist globally. He emphasized that aligning regulatory and legal frameworks is critical, particularly for Asia and the MENA region, which could benefit significantly from greater interaction with EU financial markets through technology upgrades and knowledge transfer. In turn, the EU could expand its access to a broader pool of investment funds by improving its alignment with neighboring regions.

Building on the theme of financial integration, Jochen Metzger discussed the potential benefits of the Capital Markets Union (CMU) within the EU. He underscored the importance of developing a dynamic commercial paper (CP) market, advocating for a fully digital issuance process with immediate execution (T+1) on a licensed platform. Metzger highlighted that intermediated liquidity, especially during times of market stress, is essential for a robust CP market, and suggested creating CP indices, repos, and baskets to help market makers manage exposure. Additionally, he stressed the need for CPs to be eligible for ECB and Eurosystem refinancing, noting that central banks should include CPs in asset purchase programs during crises to stabilize markets.

The second session underlined the importance of regulatory alignment and technological modernization across regions to foster stronger financial ties between the EU and its neighbors. By addressing these challenges, both Europe and its surrounding regions can enhance market stability and increase access to capital, benefiting from mutual collaboration.

Investing in Renewable Energy and Climate Adaptation

The third session explored the growing need for investments in renewable energy and climate adaptation, highlighting the different perspectives on addressing this global challenge.

Jean Morcos, Senior Investment Officer at the International Finance Corporation, emphasized the urgent need for climate adaptation investments due to severe impacts like rising temperatures and flooding. He noted that investors from neighboring regions view the EU as “a source of capital,” particularly through bond issuances, which complement local funding efforts to address these climate challenges.

Similarly, Marcus Pratsch, Head of Sustainable Bonds at DZ BANK, highlighted the necessity of shifting focus from risks to opportunities in renewable energy. He stressed that while there is significant capital and market instruments available, the challenge lies in directing these resources effectively. Pratsch underscored that there is “no one-size-fits-all solution” for renewable energy, noting that solutions must be tailored to local conditions and acknowledging that sustainability has “a cultural component.”

Building on this, Martin Nagell, Director at Masdar (Abu Dhabi Future Energy Company), discussed the challenges faced by both mature and emerging markets in attracting renewable energy investment. He pointed out that emerging markets face issues such as high costs and insufficient equity capital, which impede the green transition. Nagell suggested that large-scale projects and regional collaboration could improve market attractiveness, reflecting Pratsch’s emphasis on tailored, context-specific solutions.

Bora Böcügöz, Member of the Management Board of Deniz Bank emphasized the critical need to convert rising global energy demand into renewable technologies. He acknowledged progress in Turkey but stressed the need for further efforts in emerging markets, reinforcing Nagell’s call for overcoming market-specific challenges. Böcügöz also highlighted the role of regulations and standards, such as GAR and Global Reporting Standards, in ensuring investment transparency and boosting investor confidence, which aligned with Morcos’s view of the EU’s supportive role in mobilizing capital for renewable projects.

Thematic Investments Driving Sustainable Transitions

The fourth session focused on the crucial role of thematic finance in funding the transition to a sustainable future. Dr. Annette Windmeißer, Co-Head of Division Climate Finance at the Federal Ministry for Economic Cooperation and Development, highlighted the staggering $2.4 trillion financial requirement to tackle climate change and build resilient infrastructure in Emerging Markets and Developing Countries (EMDCs), excluding China. She emphasized that $1 trillion of this amount must come from domestic sources. To bridge this gap, Dr. Windmeißer stressed the need to strengthen the business case for investments from the Global North into the Global South and to bolster domestic investment efforts. Key strategies include lowering capital costs, developing attractive financial products, creating a supportive regulatory environment, and enhancing the capacity of local banks and financial institutions.

Correspondingly, David Marques Pereira, ESG Originator at DZ BANK AG, underscored the pivotal role of thematic finance in this transition, asserting that it is one of the main pillars for financing. Pereira explained that thematic finance can be achieved through dedicated Use-of-Proceeds Transition Instruments or Sustainability-Linked Instruments. He emphasized the necessity of having an “ambitious structure and transparent set-up” to attract investors interested in sustainable opportunities. Pereira also expanded the concept of transition beyond traditionally hard-to-abate sectors, highlighting its relevance to other sectors such as agriculture. Both Pereira and Windmeißer agreed on the importance of broadening the scope of transition finance to avoid a narrow perspective. Pereira further noted that Public-Private Partnerships can significantly enhance the transition process by leveraging public entities’ local knowledge and expertise, thereby ensuring effective direction of private capital into transition projects.

Natalia Toschi, Head of Funding at the International Fund for Agricultural Development (IFAD), Dieter Wang, Sustainable Finance Specialist Consultant at the World Bank and Simone Utermarck, Senior Director of Sustainable Finance at the International Capital Market Association (ICMA), affirmed these sentiments, stressing the importance of thematic finance and effective partnerships in supporting sustainable transitions.

Unlocking EU’s 2050 Climate-Neutrality Goal

Session 5 focused on achieving the EU’s climate-neutrality goal by 2050. Juliane Sakellariou, Founder and Managing Director at FORIMPACT, emphasized that this goal is central to the European Green Deal and is legally mandated by the European Climate Law. Sakellariou outlined the EU’s strategy, which includes investing in technology, empowering citizens, and ensuring a just transition across industrial policy, finance, and research.

The speakers of session five Frank Riemenschneider-Greif, Managing Director of LUCRESTA Clean Energy GmbH, and Brendan Devlin, Adviser at The European Commission and Ronald Rose, Investor at PM Pfennigs Mobility specifically highlighted biomethane as crucial for decarbonizing the EU’s energy system due to its ability to be stored using existing infrastructure. They called for a significant increase in biomethane production to 35 billion cubic meters by 2030, requiring around €37 billion in investment.

What do we learn from the two days?

• Unified Approach: Stronger cooperation between the EU, MENA, and Central Asia is essential, focusing on environmental and innovative initiatives.

• Regional Opportunities: Enhanced relations with neighboring regions can boost growth, job creation, and energy transformation.

• Sustainable Growth: Leveraging regional advantages and addressing fair competition is crucial for sustainable development.

• Financial Integration: Banking sector collaboration and regulatory harmonization between the EU and MENA are vital for deeper economic ties.

• Investment Focus: Significant investments are needed for climate adaptation, with the EU playing a key role in mobilizing capital.

• Regulatory Alignment: Aligning financial and regulatory frameworks across regions can enhance market stability and integration.

• Local Solutions: Tailoring renewable energy solutions to local conditions is critical for effective resource allocation and market attractiveness.

• Thematic Finance: Expanding thematic finance to various sectors and ensuring transparent, ambitious structures will support the sustainable transition.

• Climate Neutrality Strategy: The EU’s strategy for achieving climate neutrality includes investing in technology and ensuring a just transition.

• Biomethane Investment: Increasing biomethane production is crucial for decarbonizing the energy system, requiring substantial investment.

And now?

The Sustainable Global Capital Annual Summit 2024 has reinforced the necessity of regional collaboration for a sustainable future. With insights from leading experts and corporate leaders, the path forward requires a unified approach across Europe, MENA, and Central Asia. Strengthening cooperation, aligning regulatory frameworks, and fostering financial integration are pivotal. The summit highlighted that integrating capital markets, promoting sustainable finance, and enhancing regional partnerships will drive progress. The commitment to addressing climate challenges and achieving sustainable growth is evident, paving the way for a more resilient, inclusive, and sustainable global capital market. The outlook is promising, with a clear mandate to leverage regional strengths and collaborative strategies to meet our shared sustainability goals.