Total sustainable bond issuances in the Middle East, which include green, social, sustainability, and sustainability-linked bonds, reached $16.7 billion in the first nine months of 2024, down 18 percent from the same period last year.
S&P Global attributed this decline, in its latest report, to higher interest rates and some normalizing from the halo effect of COP28 in November 2023. “We calculate sustainable bonds contribute to 15-20 percent of total bond issuances (excluding sovereigns and private placements) in the region, higher than global levels of 12-14 percent,” stated the report.
Region’s sustainable finance activity
The ‘Sustainability Insights: Middle East Sustainable Bond Issuance Trends’ report also reveals that 35-40 percent of the issuances in the region this year were propelled by private placements and domestic issuances, including these amounts. Therefore, the share of sustainable bond issuance in the region drops to 10-15 percent.
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 declined despite continued bond issuances in the region.
The report added that sustainable bond issuances in the Middle East could require acceleration in implementing net-zero policies, despite government initiatives and increasing alignment with sustainability strategies, or even regulatory requirements.
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. These factors could affect funding and regulations.
UAE, Saudi Arabia lead sustainable bonds market
S&P Global revealed that the UAE and Saudi Arabia issue the most sustainable bonds in the Middle East. However, issuances from Qatar have risen this year. Issuances in the UAE are more diverse by issuer type than those in the rest of the region, but financial institutions are prevalent across the board this year.
In the UAE, the financial sector has pledged to mobilize AED1 trillion ($272 billion) in sustainable finance by 2030 as a key factor for issuances in the sector. Large corporates, namely government-related entities, also are leading issuances in the country.
Another key player in the sustainable bonds market is Türkiye, which along with the UAE and Saudi Arabia, dominates regional sustainable bond issuances.
Sustainable sukuk share rises
The report also revealed that the total volume of sustainable sukuk globally reached $7.1 billion in the first nine months of 2024, down 11 percent compared with the same period a year earlier. In the Middle East, however, the total sustainable sukuk volume reached $6.1 billion in the same period, relatively unchanged from a year earlier.
The share of sustainable sukuk in the region continues to increase, constituting close to 35-40 percent of sustainable bond issuances in the Middle East so far in 2024, compared with 25-30 percent at the end of 2023.
“Most of the issuance stems from the GCC, and we expect this to continue,” the report added.
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