Gulf heavyweights steer sustainable bond surge

United Arab Emirates and Saudi Arabia are set to dominate Middle East sustainable bond issuance this year, with total regional volumes projected to reach between $20 billion and $25 billion, according to S&P Global, as governments and corporations accelerate funding for climate and energy transition goals.

The ratings agency estimates that the two largest Gulf economies already accounted for about 80 per cent of sustainable bond issuance by value across the region in 2025, underlining their central role in shaping capital markets tied to environmental, social and governance objectives. The forecast reflects sustained appetite among regional issuers and global investors for green, social and sustainability-linked instruments, even as higher interest rates and geopolitical tensions weigh on broader debt markets.

Saudi Arabia’s contribution has been driven primarily by sovereign and bank-led programmes structured around formal green financing frameworks. The kingdom’s Public Investment Fund has issued multi-tranche green bonds to finance renewable energy, clean transport and sustainable infrastructure projects aligned with Vision 2030. In parallel, major lenders including Saudi National Bank and Al Rajhi Bank have tapped debt markets with sustainability-linked and green sukuk, tying funding costs to measurable environmental targets.

Riyadh’s sovereign green issuance has drawn strong international demand, reflecting confidence in the country’s fiscal position and the scale of its transition ambitions. Proceeds have been earmarked for renewable power, water management and energy efficiency schemes, supporting the government’s target to generate half of its electricity from renewables by 2030. Saudi Arabia has also established a sovereign green financing framework that outlines eligible project categories and reporting standards, reinforcing transparency for investors.

Across the Gulf, the UAE has carved out a complementary leadership position, with large corporates and financial institutions at the forefront of issuance. State-linked entities and major banks have raised capital through green and sustainability-linked bonds, while so-called blue bonds – instruments dedicated to marine and water-related projects – have gained traction. Abu Dhabi and Dubai-based issuers have sought to align offerings with national net-zero strategies, including the UAE’s commitment to achieve carbon neutrality by 2050.

Abu Dhabi National Energy Company, known as TAQA, and renewable energy company Masdar have been among prominent participants in sustainable financing markets. Financial institutions such as First Abu Dhabi Bank and Emirates NBD have also expanded green and sustainability-linked funding programmes. These issuances often finance solar and wind projects, sustainable real estate developments and low-carbon transport initiatives, positioning the UAE as a regional hub for climate-aligned capital.

S&P Global’s projection of up to $25 billion in regional issuance reflects expectations that both sovereign and corporate borrowers will continue to view sustainable bonds as a strategic funding channel. Although issuance volumes dipped globally during periods of elevated borrowing costs, demand for labelled debt in the Gulf has remained resilient, supported by strong balance sheets and ambitious infrastructure pipelines.

Analysts note that sustainable bond frameworks in both countries have matured significantly over the past three years. Clear taxonomies, regular impact reporting and third-party verification have become more common, addressing earlier investor concerns about so-called greenwashing. Market participants say this evolution has helped narrow pricing differentials between conventional and sustainable bonds, reducing any perceived cost premium for issuers.

Beyond the UAE and Saudi Arabia, other Gulf Cooperation Council states have entered the market, though at smaller scale. Qatar, Bahrain and Oman have launched green or sustainability-linked instruments, often through banks or state-owned enterprises. However, issuance from these markets remains modest compared with the scale seen in Abu Dhabi, Dubai and Riyadh, reinforcing the concentration highlighted by S&P.

Global trends also shape the region’s outlook. International investors managing ESG-focused portfolios continue to seek exposure to emerging market sustainable assets, particularly those linked to energy transition in hydrocarbon-producing economies. The Gulf’s commitment to large-scale renewable projects, hydrogen development and carbon capture initiatives provides a pipeline of eligible investments that can underpin further bond issuance.

At the same time, scrutiny around ESG standards has intensified worldwide. Regulators in Europe and North America have tightened disclosure rules, and some investors have become more selective about environmental claims. Gulf issuers have responded by enhancing reporting detail and aligning documentation with international principles such as those set out by the International Capital Market Association.

Bankers involved in regional deals say the structure of issuance has diversified. Alongside traditional green bonds, sustainability-linked bonds tied to performance targets – such as reductions in carbon intensity or increases in renewable capacity – are gaining ground. Islamic finance structures, particularly green sukuk, have also expanded, allowing issuers to tap both conventional and Sharia-compliant investor bases.

For Saudi Arabia, sustainable financing supports broader economic transformation. Mega-projects including NEOM and other large-scale developments are integrating renewable energy and low-carbon design elements, requiring substantial capital. Green and sustainability-linked debt instruments provide a mechanism to align funding with stated environmental objectives while broadening the investor base.