Sustainable finance in the Middle East is gaining momentum, defying broader global headwinds and setting the stage for significant growth in 2026. According to a recent S&P Global analysis, sustainable bond issuance across the region is on track to total between $20 billion and $25 billion next year — a robust outlook that highlights increasing investor appetite and expanding demand for environmentally and socially responsible financing instruments.
A sustainable bond — a fixed-income security whose proceeds are dedicated to financing or refinancing projects with clear environmental or social benefits — has emerged as a preferred mechanism for corporates, financial institutions, and governments to fund their transition towards greener, more resilient economies.
Growth Despite Global Slowdown
While global sustainable bond issuance saw declines in 2025, the Middle East managed to grow issuance by about 3 percent last year — a notable divergence from the broader market, which experienced a 21 percent drop. This resilience was driven predominantly by activity in the Gulf Cooperation Council (GCC) countries, particularly Saudi Arabia and the United Arab Emirates (UAE), which helped offset weaker issuance in markets like Turkiye.
Green Bonds, Sustainable Sukuk, and New Instruments
Green bonds are expected to maintain dominance in the region’s sustainable finance market next year, focusing on renewable energy, water infrastructure, and climate resilience projects. Analysts at S&P Global also highlight that sustainable and sustainability-linked loans may continue gaining traction due to favourable terms and increased flexibility for issuers.
One standout trend is the rapid expansion of sustainable sukuk — Sharia-compliant bonds tailored for ethical investing. In 2025, total sustainable sukuk issuance in the Middle East reached a record $11.4 billion, up from $7.9 billion in 2024, led by strong activity in Saudi Arabia and the UAE. These sukuk now represent a significant share of the overall sustainable bond market and are expected to keep growing in 2026.
Diverse Issuers and Market Drivers
The S&P Global report highlights that financial institutions will be central to funding sustainability efforts in the coming year, while large corporations and government-related entities continue to expand their role in the market. The divergence between sustainable bond and sustainable loan markets also reflects different issuer needs: loans are currently more prominent in markets like Turkiye, whereas bonds are buoyed by Gulf activity.
Regulatory progress is also helping to boost confidence and clarity around sustainable debt issuance. For example, Saudi Arabia’s Capital Market Authority introduced new guidelines for green, social, and sustainability-linked debt instruments, improving the framework for future issuance.
Looking Ahead: Climate Goals and Transition Finance
Experts say that beyond green bonds and sukuk, transition finance — designed to support companies with credible decarbonisation strategies — and, to a lesser extent, blue bonds for marine and water sustainability projects, could provide additional growth avenues. With high exposure to climate risks and rising physical impacts in the region, many issuers are aligning debt issuance with long-term sustainability goals.
As investor demand for sustainable assets continues to rise globally, the Middle East is positioning itself as a significant player in the ESG (Environmental, Social, Governance) debt space. If current trends hold, 2026 could mark a new milestone for regional sustainable finance, with issuance reaching unprecedented levels and supporting a broad range of green and social initiatives.
