Sustainable bonds will continue to dominate the market in 2024, with UAE and Saudi Arabia being the largest sources of issuance in the region, a new report said on Wednesday.
According to S&P, the green, social, sustainability, and sustainability-linked bond (GSSSB) market is likely to see a modest increase in issuance at $0.95 trillion-$1.05 trillion this year, compared to $0.98 trillion in 2023.
The GSSSB market is likely to comprise 14 percent of the overall market share in 2024, the report added, up from 13 percent in 2023 and 2022. This marks a significant jump from the 5 percent share logged in 2019.
Read: UAE dominates regional green bond league tables with $10.7 billion in sales
The Middle East, with 149 percent growth, was one of the fastest-growing regions for GSSSB issuance in 2023, reaching a record $23 billion.
Green bonds to dominate
According to the report, green bonds will continue their dominance in GSSSB markets, buoyed by increased demand for environmental projects across all geographies. Transition and blue bonds may also gain traction in the GSSSB market in 2024.
Green bonds comprised 59 percent of total GSSSB issuances in 2023, up from 56 percent in 2022.
Green bond issuance expanded 10 percent year-on-year in 2023. It reached a total of $575 billion, largely due to increased issuance from Europe and Asia-Pacific, despite another year of contraction from North American issuers. Countries such as France, Germany, Italy, and the UK each issued more than $10 billion of sovereign green bonds in 2023.
Growth concerns
With many major central banks nearing the end of their rate hike cycles, macroeconomic uncertainty and other external factors may hinder the degree to which the GSSSB market expands, S&P said.
Uncertainty associated with high interest rates and the possibility of wider economic slowdown in regions such as Europe and Asia-Pacific may also dampen issuances.
Middle East region to remain strong
Governments and large corporates are expected to lead the sustainable sukuk issuances in the region.
“Growth in sustainable sukuk continues, and we expect to see higher volumes as issuers meet investor demands and core Islamic finance countries seek to reduce their carbon footprints,” the report said.
Large exposure of the region to the hydrocarbon sector and water scarcity could be the key factors propelling green issuances.
“Renewables and hydrogen projects dominate use of proceeds for climate mitigation objectives, and we expect financing adaptation to water stress and heat waves will continue to drive issuance. However, we believe much will depend on the pace of decarbonization strategies,” the report added.
