Arab Petroleum Investments signs $75M Islamic facility for carbon offsets @ 1 ton CO2

Arab Petroleum Investments Corporation, an energy-focused multilateral financial institution, announced signing of $75 million Murabaha agreement in favor of Hartree Partners Power and Gas Company, an affiliate of Hartree Partners, a global energy and commodities firm.

The first-of-its-kind facility in the MENA region will fund high-quality voluntary carbon offsets, which will be used to develop environmentally friendly projects worldwide. Each carbon offset represents the ownership of one ton of carbon dioxide equivalent (CO2e) which offsets corresponding emissions by the holder.

Every year, it is estimated that more than 50 billion tons of greenhouse gases are emitted into the atmosphere. Robust voluntary carbon markets, where carbon credits are purchased voluntarily, have emerged as a cost-effective asset class enabling governments and corporations to immediately begin decarbonizing their footprints in line with the global effort to reach net zero emissions by 2050. This particularly applies to sectors and industries where emissions are not yet fully abatable due to technological or cost feasibility. For investors, carbon offsets can also mitigate risks associated with energy transition by making their investment portfolios more resilient to evolving climate regulations.

Regulators and rating agencies are also increasingly taking interest in climate finance and sustainability reporting disclosures by banks. APICORP’s facility will fund carbon offsets that are registered with the non-profit platform Verra, the largest global registry for nature-based offsets.

Voluntary carbon markets are particularly relevant to the Arab region. On a per capita basis, carbon emissions are substantially higher in MENA compared to peer economies. The region is also one of the most affected by climate change impact according to the United Nations Framework Convention on Climate Change (UNFCC) as it strains its already scarce water and agricultural resources.

The Public Investment Fund recently announced the establishment of the Regional Voluntary Carbon Market Company with Saudi Tadawul Group Holding Company to support businesses in the region in their transition to net zero. The company helped facilitate the largest carbon credit auction in the world involving one million tons of carbon credits as regional businesses accelerate their quest for net zero emissions.

Norton Rose Fulbright’s Dubai office acted as lender’s counsel; and Reed Smith LPP’s Dubai office acted as borrower’s legal counsel. Shape Knowledge Services provided Shariah advisory services, including the issuance of an operating Fatwa. DD&Co Limited will supply London Metals Exchange approved non-ferrous base metals required to enter into each Shariah-compliant Murabaha transaction.

Key takeaways

• The facility in MENA will fund high-quality voluntary carbon offsets, which will be used to develop environmentally friendly projects worldwide.
• Each carbon offset represents the ownership of one ton of carbon dioxide equivalent which offsets corresponding emissions by the holder.
• It is estimated that more than 50 billion tons of greenhouse gases are emitted into the atmosphere annually.
• Voluntary carbon markets have emerged as cost-effective asset class enabling governments and corporations to begin decarbonizing.
• This applies to sectors and industries where emissions are not yet fully abatable due to technological or cost feasibility.
• For investors, carbon offsets can also mitigate risks associated with energy transition by making their portfolios more resilient to climate regulations.
• Voluntary carbon markets are particularly relevant to the Arab region.
• On a per capita basis, carbon emissions are substantially higher in MENA compared to peer economies.
• The region is one of the most affected by climate change according to UNFCC as it strains with scarce water.
• Public Investment Fund announced establishment of Regional Voluntary Carbon Market Company with Saudi Tadawul Group.
• The company helped facilitate largest carbon credit auction in the world involving one million tons of carbon credits.

Khalid Ali Al-Ruwaigh, CEO of APICORP, said, “Financial innovation plays a crucial role in ensuring a sustainable energy ecosystem. This Murabaha facility was created as part of our commitment to provide innovative financial solutions to enable a balanced energy transition, as well as support Arab countries’ aspirations to reach net zero carbon emissions in line with the Paris Climate Agreement. The precedent-setting transaction serves as a major milestone for our vision of supporting the MENA region in its journey to sustainability.”

“Banks and other financial institutions play an important role in the efforts to meet the Paris Agreement target because financing remains one of the most crucial challenges in the decarbonization chain. The facility’s Shariah compliance and syndication features can have major implications because they make it convenient for the regional market to adopt and enable additional banks to join and gain exposure to this asset class,” added Al-Ruwaigh.

Stephen Hendel, Founding Managing Director of Hartree, said , “Robustness, reliability and integrity are at the heart of Hartree’s investments in the Carbon markets, and we thank APICORP for its expertise and leadership in structuring this unique Islamic facility.”