Total sustainable bond issuance in the Middle East, including green, social, sustainability, and sustainability-linked bonds, reached $16.7 billion in the first nine months of 2024, down 18 per cent from the same period a year earlier.
In its report, ‘Sustainability Insights: Middle East Sustainable Bond Issuance Trends’, S&P Global Ratings attributed the downturn to “a relatively high COP28 halo effect”.
The report urged rapid “implementation of net zero policies despite government initiatives, and increasing alignment with sustainability strategies, or even regulatory requirements” to accelerate the process.
The demand for sustainable bond issuance in the region is sensitive to economic growth, inflation, and interest rates, while transparency and disclosure within ESG reporting are in the early stages of development – factors that could affect funding and regulations.
In the first two quarters of 2024, sustainable finance activity in the region improved better sequentially compared with global trends. However, this changed in the third quarter, where activity was muted despite continued bond issuances in the region.
Higher interest rates are another reason sustainable bond issuance has slowed down so far in 2024 compared to 2023 levels.
S&P Global Ratings also believes that the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) will continue leading the region’s Sustainable Bonds issuances, despite increased activity elsewhere in the region.
Sustainability leads Middle East issuance
While funding climate transition and adaptation remains a priority in the region given the exposure to hydrocarbons, sustainability issuances (including funding social projects) have risen in 2024 compared with only green projects previously.
This contrasts with global trends, where green bonds remain prevalent and account for about 60 per cent of sustainable bonds.
“We think the shift in the region is spurred by issuer profile. Most issuers year to date are financial institutions, where adding a social element to the framework is aligned with overall respective sector exposure,” said S&P Global.
While the UAE and Saudi Arabia make up most of the sustainable bonds issuance in the Middle East, issuances from Qatar have risen this year. This includes a $1,500 million green bond issued by the State in the second quarter, the biggest issuance in the region this year.
Issuances in the UAE have been more diversified by issuer type than those in the rest of the region, but financial institutions are prevalent across the board this year. The UAE financial sector has pledged to mobilize AED1 trillion ($272 billion) in sustainable finance by 2030.
Share of sustainable sukuk rise
The share of sustainable sukuk in the region continues to increase, constituting close to 35-40 per cent of sustainable bonds issuance in the region so far in 2024. This compares to 25-30 per cent at year-end 2023.
The total volume of sustainable sukuk globally reached $7.1 billion in the first nine months of 2024, down 11 per cent compared to the same period a year earlier. The Middle East accounted for $6.1 billion of this, relatively unchanged from a year earlier.
The report also suggested three factors that could spur the growth in issuances. These are:
- Transparency & disclosures: Implementation of ESG disclosures and reporting (which is mandatory in the UAE, but only guidelines available in Saudi Arabia, Bahrain, Qatar, Kuwait, and Oman). Also, the data needs to be validated through audits.
- Government initiatives: Including regulations and taxonomies and efforts to accelerate energy transition.
- Economic trends: Including economic growth factors, prevailing inflation and interest rates.
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