The Middle East and North Africa (MENA) region is bracing for significant cuts to aid and to sustainable finance under US President Donald Trump’s administration. Not only are the reductions affecting US contributions, but they could also hit European and Asian democratic donors, such as Japan, as well as multilateral donors. The question arises: where will MENA countries get the funds necessary for their green transition? And who will make up the shortfall left by the US’s sustainable financing cuts?
All eyes will be on China, the EU and the UK to fill the gaps. However, great uncertainty still surrounds their ability to step up their financial contributions. The US freeze on aid and finance, announced in January 2025, could be mitigated by a shift among European financiers towards investments in key green sectors, such as renewable energy.
China may be the primary beneficiary of the reduction in US funding. As China steps up sustainability financing in the region alongside direct investments in renewable energy, it is likely to reap significant rewards in terms of increased influence in the MENA region.
Trump administration spurs global fall in sustainable funding
Data from Morningstar suggests that a global reversal in sustainability funds occurred in the first quarter of 2025, recording the most significant outflows on record at $8.6 billion, compared to the $18.1 billion of inflows during the final quarter of 2024. Sustainability funds in Europe recorded their first-ever quarter of outflows since 2018 – around $1.2 billion of outflows were recorded in the first quarter of 2025, compared to $20.4 billion of inflows in the fourth quarter of 2024 – following an increase of inflows into conventional (non-sustainable) funds
Interestingly, the US U-turn on sustainability was already in the works under the Biden administration: the $6.1 billion of outflows from US funds in the first quarter of 2025 in fact marked the tenth consecutive quarter of outflows.
The main driver of the reversal in funding is Trump’s hostility to climate-related policies, which has created a domino effect worldwide. Upon taking office in January 2025, Trump withdrew the US from the Paris Climate Accord, cut 90 per cent of the USAID foreign aid contracts and $60 billion in overall US assistance worldwide, and resumed an energy policy underpinned by fossil fuels.
These moves have increased the risk of associating with sustainability and climate for fund managers and investors around the world. They also triggered a wave of product rebranding away from environmental, social and governance (ESG) related terms.
National-level strategic priorities are also changing, particularly in Europe. With fears of a return to trade protectionism and the US prioritizing its interests over alliances, European countries and institutions are dedicating more resources to reinvigorating their industrial capabilities and defence sectors. Green and sustainable growth could be pushed down the agenda of priority economic drivers as a result.
ESG funds favour stable partners over fragile states
The MENA region has a large number of sustainable finance donors but a scarcity of funds, as the region suffers from a significant financing gap due to conflict, instability and severe poverty. Particularly in low-income countries.
Western countries are a major source of external donations to the region. Specifically, the OECD’s Development Assistance Committee (DAC) members are the most significant contributors to sustainability, including for climate finance. However, the Western financing footprint broadly suggests that the MENA region is not at the top of Western countries’ priorities for aid OECD data from 2017 to 2021 of green financing flows to MENA show that EU institutions contributed more than $38 billion, followed by Germany ($29.2 billion), the US ($28.3 billion) and France ($11 billion). The UK’s contribution was $4.9 billion.
At the multilateral level, the European Bank for Reconstruction and Development (EBRD) also plays a key role in funding the green transition with $33 billion. This is not surprising, given the EU’s proximity to the region and the extensive network of partnerships that European institutions have established there, as well as Europe’s global leadership in sustainability.
However, only a handful of countries in the MENA region benefitted from most of the Western financing flows in the 2017-2021 period. Turkey, Jordan, Morocco, Egypt and Iraq collectively received the majority of sustainable finance, amounting to $74.2 billion. That figure is almost double the amounts that all other MENA low- and middle-income countries received combined over the same period. The disparity highlights the challenges faced by poorer and conflict-affected countries in accessing funds abroad. When summarising such dynamics, ‘‘money attracts money”, argued one expert analysis.
The US (excluding military assistance) was the biggest Western bilateral donor of sustainable finance to Jordan, Iraq and Libya, giving almost $7 billion, $4 billion and $460 million, respectively. EU-dominated money flows to Egypt, Lebanon and the Occupied Palestinian Territory (OPT), collectively amounted to $12 billion. Germany was the largest source of funding for Morocco, Tunisia and regional initiatives, at $8.7 billion.
Western donors also favour particular sectors – those related more to political stability and economic openness. For instance, most humanitarian aid, which accounted for the largest share of financing at $38.9 billion, was directed to countries in need of stabilization measures, which take priority over the green transition, especially conflict-affected and poor countries. On the other hand, funds aimed at relatively advanced markets, especially in middle-income countries such as Turkey, Egypt and Morocco, were allocated to advancing sustainability in growth-driving sectors, including economic infrastructure and services ($17.9 billion), as well as energy generation and renewables ($8 billion), reflecting a focus on mitigation and less so on adaptation. The uneven distribution of funds also arises due to underdeveloped markets and regulations, widespread corruption, dated infrastructure, particularly for electricity generation and distribution grids, a lack of data, costly paperwork, and the lengthy auditing process required for funding applications.
Diversification is a key objective for donors
Multilateral and European institutions as well as China and the Gulf countries are particularly significant for the MENA region, as they are the primary financing sources now that the US under Trump has withdrawn support for sustainability and climate finance.
MENA countries are seeking diversification of funding sources as well as governance models and development agendas, particularly from traditional Western partners and China.
Comparing Chinese sustainable finance to the contributions of DAC members is challenging given the lack of transparency in China and the need to rely on secondary sources for data. However, data available from AidData paints a contrasting picture of two different models. Unlike DAC members, China focuses more on profitability within a ‘win-win’ framework under its Belt and Road Initiative rather than a recipient-donor relationship.
According to AidData, in the 2017 to 2021 period, Egypt, Iran, Iraq and Turkey collectively received $13.1 billion – the most Chinese sustainability finance in the MENA region. In total China provided $14.3 billion in funding for sustainability for the region. In addition to this, China contributed aid for various technical, humanitarian and medical purposes, the value of which is not available. An uptick in this type of assistance was seen, especially since the COVID-19 pandemic. It was concentrated particularly in Mauritania, Sudan, Jordan, Tunisia, the OPT and Yemen.
Lower-income countries aside, China has focused on financial return. It provided $13.4 billion in loans, which accounted for 93.6 per cent of its total sustainable finance. There is a clear divergence in the sectors that interest Chinese donors and investors, compared to Western counterparts. China focused on growth-driving sectors, such as infrastructure, which guarantees returns to Chinese investors and financial backers. The energy sector attracted most funding, accounting for 32.1 per cent ($4.6 billion) of the total Chinese funding. The industry, mining and construction sector received the next-largest amount at $3.5 billion, followed by transport and storage at $1.7 billion. This notable trend reflects how priorities derive from different development models: Chinese funders prioritize hard infrastructure and revenue-generating initiatives, while Western financiers focus on interventions relating to capacity-building and promotion of liberal values.
The variety of different options suggests that the involvement of more donors could produce more financing opportunities for MENA countries, and could broaden the range of sectors covered –– even if the amounts of funding are reduced relative to the region’s needs. However, the same cannot be said of fragile countries. These are most affected by the impacts of climate change, yet all financing players seem to show less interest in deep involvement in these markets due to high risk.
This is where multilateral and regional development banks have a role to play. The World Bank, United Nations agencies and the EBRD provided almost 72 per cent of all multilateral funding to the region between 2017 and 2021. Regional development banks, such as the Arab Fund ($25.6 billion), the African Development Bank ($23.9 billion) and the Islamic Development Bank ($11.6 billion) are also key sources of finance in MENA, as is the China-led Asian Infrastructure Investment Bank ($3.3 billion). The data shows that the MENA region has an over-reliance on multilateral funding sources, without which its sustainability drive would significantly diminish.
More climate funding from China equals more influence
It is unlikely that China will fill the financing gaps left by the Trump administration, given the starkly different financing models, priorities and values, sectors and objectives, as well as the limited experience of Chinese bankers and investors in the region. For instance, China is not expected to shift from a loans-oriented financing model to a model that aims at reducing the debt burden on recipient countries. However, China will accelerate the shift of its manufacturing to some MENA countries (especially Egypt and Morocco) as a long-term strategy to create secondary re-export bases abroad. The majority of manufacturing deals are likely to focus on energy technology.
More importantly, the data shows that China is stepping up its efforts in financing sustainability in the region. However, a comprehensive breakdown of China’s investment in renewable energy is beyond the scope of this article. If it was included, it would reveal that China is way ahead of the West. In the long term, this could be translated into greater Chinese geopolitical influence, potentially threatening Western interests.
How the EU and the UK could help fill the funding gap
The US withdrawal of aid and finance could also be mitigated by increased European investment. Europe is increasing its contributions to countries like Egypt and Jordan, dedicating more than $5 billion to both countries in April 2025. The EU also disbursed around $700 billion to Tunisia between 2021 and 2024 through the Neighbourhood, Development and International Cooperation Instrument-Global Europe. Yet, while most Western initiatives target humanitarian aid, their ultimate objective is to prevent irregular migration towards Europe, rather than fighting the implications of climate change.
Beyond this, Western financiers are expected to increase focus on investments in key green sectors, such as renewable energy. For example, French President Emmanuel Macron signed a $7.9 billion deal to build a green hydrogen plant in Egypt that will produce 1 million tons of green ammonia annually. This is because direct investment-driven finance aligns with the sustainability objectives of both parties in the long term.
Such an approach aligns the EU and other Western benefactors’ financing model more closely with China and the Gulf Cooperation Council (GCC): profit-driven, apolitical, and more compatible with the national priorities of EU countries.
The EU, the UK and their allies should nonetheless go further. Quick adoption of regulatory reforms could give hedge fund managers and investors more guarantees and incentives to increase inflows of ESG-related funds and could help to bridge the gap in funding.
They should also increase their contributions to sustainable finance to vulnerable countries in MENA, through initiatives targeting specific goals either through bilateral deals or through the World Bank and UN climate agencies. This will require them to raise their contributions to multilateral cooperation in sustainability to support ongoing projects and encourage new ones. The focus should be on less-developed countries in the region, while adopting insurance policies that address the risks for investors and mechanisms to fight corruption as a key to a fairer distribution of sustainable funds across the region.
Lastly, Europe and the UK should work with other players in the region, particularly China and the GCC countries, on future projects through co-financing, partnerships, mergers and acquisition deals, joint technical assistance, debt-swap and concessional debt instrument agreements for the benefit of regional countries.
This article is part of a series that explores the green-finance initiatives of China and the GCC states in the Middle East and North Africa. Similarly to our articles on China, the GCC and Egypt, this one analyses the Chinese and Western contributions to sustainable finance in MENA’s low – and middle-income countries, while outlining the hurdles that may face Western (DAC) donors after the Trump administration’s freeze of sustainable and green funds. The analysis uses data from 2017 to 2021, with the exception of instances where data is unavailable due to low transparency or is lacking due to the absence of projects.
