Middle East Sustainable Bond Market Defies Global Slowdown, S&P Says

The Middle East’s appetite for sustainable bonds strengthened in 2025 despite a sharp global downturn, with issuance expected to climb further next year, according to a new report by S&P Global.

S&P said sustainable bond issuance in the region rose by about 3 per cent in 2025, even as global volumes fell by 21 per cent. Issuance in the Middle East is projected to reach between $20 billion and $25 billion in 2026, reflecting continued investor demand and policy support.

Growth was led by Gulf Cooperation Council countries, particularly Saudi Arabia and the UAE, which offset a steep decline in Turkiye. In Turkiye, issuance volumes dropped by 50 per cent and overall value fell by 23 per cent.

Sustainable bonds are fixed-income instruments whose proceeds are used exclusively to finance or refinance eligible green or social projects. They offer investors steady returns while funding initiatives tied to environmental protection or social development.

Rawan Oueidat, an analyst at S&P Global Ratings based in Dubai, said green projects are expected to remain dominant in the regional bond market. She noted that sustainability-linked instruments are likely to remain more common in the loan market, with sustainable sukuk and transition finance emerging as key growth areas.

The report found a clear split between bonds and loans in the region’s labeled debt market. Sustainable loan activity was concentrated in Turkiye, which accounted for roughly 60 to 65 per cent of the market by value and up to 75 per cent by volume. The remainder was mainly issued in the UAE and Saudi Arabia. Corporates were identified as the primary drivers of sustainable loan activity, attracted by flexibility in repayment structures and allocation of proceeds.

By contrast, the bond market was dominated by the UAE and Saudi Arabia, which together accounted for 80 per cent of sustainable bond issuance in 2025. Issuers in sectors aligned with a lower-carbon economy, such as renewable energy and real estate, were more prevalent in the bond space. Sovereign issuers often included climate adaptation projects within their frameworks.

Saudi Arabia introduced a green bond framework in 2025 that incorporates climate adaptation measures. The country’s Capital Market Authority also approved new guidelines for green, social and sustainability-linked debt instruments in May, aiming to strengthen regulatory clarity and investor confidence.

Sustainable sukuk issuance reached a record $11.4 billion in 2025, up from $7.9 billion the previous year, driven largely by Saudi Arabia and the UAE. These instruments accounted for more than 45 per cent of regional sustainable bond issuance by value.

S&P expects the sustainable sukuk market to continue maturing, supported by clearer guidance and government initiatives, as the region seeks to close funding gaps tied to climate and development goals.