Sustainable bond issuance in the Middle East is anticipated to reach between $18 billion and $23 billion in 2025, according to S&P Global Ratings. This projection underscores the region’s commitment to environmental, social, and governance initiatives, with the United Arab Emirates and Saudi Arabia expected to contribute approximately 60% of the total issuance.
In 2024, sustainable bonds constituted over 25% of regional corporate and financial institution issuances, a figure notably higher than the global average of 9%. Despite this robust regional activity, the Middle East’s share of global sustainable bond issuance remains below 3%. The global sustainable bond market is projected to maintain issuance levels around $1 trillion in 2025, reflecting a steady commitment to sustainable financing worldwide.
The slowdown in issuance observed in 2024 was largely attributed to a normalization following the COP28 conference in November 2023 and rising interest rates. However, the sustained interest in sustainable bonds indicates a resilient market poised for continued growth.
Green projects are expected to remain substantial, aligning with national net-zero targets, particularly those related to clean power initiatives. Additionally, sustainability bonds, which fund a mix of green and social projects, are anticipated to see considerable issuance, reflecting the region’s broader commitment to ESG principles.
Banks, alongside corporations and government-related entities, are projected to play a pivotal role in the sustainable bond market. The development of sustainable sukuks, blue bonds, and transition bonds are identified as potential growth areas, indicating a diversification of sustainable financing instruments in the region.
The UAE and Saudi Arabia have been at the forefront of sustainable bond issuance in the Middle East. The UAE’s sustainable bond market has seen significant activity, with issuers focusing on projects that align with the country’s sustainability agenda. Similarly, Saudi Arabia’s sustainable bond market has been active, with issuers supporting projects that contribute to the nation’s Vision 2030 objectives.
The global sustainable bond market has demonstrated resilience, with annual issuance surpassing $1 trillion in 2024. This trend is expected to continue, with projections indicating that global sustainable bond issuance will hold steady at $1 trillion in 2025. Green bonds are anticipated to dominate the market, with issuance projected to reach a record $620 billion, reflecting a strong focus on environmental projects.
Social bond issuance, however, is forecasted to decline by 9% in 2025 to $150 billion, due to a lack of benchmark-sized projects and reduced pandemic-related social financing. Sustainability bonds, which fund a mix of green and social projects, are expected to remain stable at $175 billion. Transition and sustainability-linked bonds are projected to remain niche segments as they navigate evolving market sentiment.
The Middle East’s sustainable bond market is also influenced by developments in the Islamic debt market. Proposed changes by the Accounting and Auditing Organization for Islamic Financial Institutions aim to align Islamic bonds more closely with Islamic principles of risk-sharing. These changes could complicate the market, increase transaction costs, deter investors, and lead to fragmented standards across countries. Rating agencies caution that the revised structures might no longer resemble conventional bonds, potentially reducing issuance and investor interest.
Despite these challenges, the Middle East’s commitment to sustainable financing remains strong. The projected issuance levels for 2025 reflect a sustained interest in ESG initiatives, with key drivers including national net-zero targets, a focus on clean power projects, and the development of diverse sustainable financing instruments.
The role of banks, corporations, and government-related entities is crucial in maintaining the momentum of sustainable bond issuance in the region. Their participation not only supports the financing of green and social projects but also contributes to the broader goal of sustainable economic development.