The green, social, sustainable, and sustainable-linked bonds (GSSSB) market–including sustainable sukuk–in the Middle East (GSSSB) is set to expand further, with the UAE and Saudi Arabia likely to remain the leaders, Standard & Poor’s said in a report.
The report is timing with the high-profile COP28 meeting in Dubai, which has seen a number of pathbreaking decisions by nations.
GSSSB issuance in the Middle East should continue to increase in the coming years, supported by government initiatives and the relative nascency of certain markets, S&P points out.
The UAE and Saudi Arabia will likely remain the leaders of the region’s GSSSB market, particularly through green bonds, which we expect will continue driving regional issuance over the next three to five years.
Gulf Cooperation Council (GCC) government-related entities (GREs) in fossil fuel dependent sectors are aligning strategies with national sustainability targets, but implementation may be delayed, the report, however, notes.
GSSSB bond issuance, including sustainable sukuk, more than quadrupled in the first nine months of 2023 from the same period last year, to reach $19.4 billion. However, it expanded from a relatively low base. GSSSB issuance is less than 1% of the GDPs of the Middle East countries studied. This is relatively in line with certain other emerging economies. For example, GSSSB issuance in the first nine months of 2023 was comparable relative to nominal expected 2023 GDP in countries such as Indonesia (0.1%) and South Africa (0.1%). The Middle East accounts for less than 3% of global GSSSB issuance.
S&P estimates that GSSSB issuance comprised about 30% of total U.S.-dollar denominated international bond issuance in the Middle East during the first nine months of 2023. Globally, it expects GSSSB issuance to make up about 15% of total issuance in 2023. Saudi Arabia and the UAE will likely continue to capture the largest share of issuance. This is largely fuelled by government or GRE issuance to meet national sustainability targets. While we note the ramp up in GSSSB issuance in the Middle East, its contribution is still relatively marginal globally and domestically.
Issuance could be related to funding climate transition and adaptation and water projects, such as desalination. This is attributed to the high reliance of regional economies on the hydrocarbon sector, in which emissions are difficult to reduce, and exposure to water scarcity.
The majority of the governments in the GCC region, with the exception of Qatar, have announced net-zero targets. Türkiye has made a similar announcement. Deploying renewable energy will help meet the climate commitments in their nationally determined contributions (NDCs). The UAE and Saudi Arabia–which produce the highest greenhouse gas emissions in the GCC in absolute terms–have made the largest investments in renewables.
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