Sustainable bond market shows uneven regional growth
The Middle East and North Africa (MENA) region has established itself as a major force in sustainable finance, with bond issuance surging sevenfold since 2020 to total $35.1 billion in 2025. This growth was fueled by renewable energy projects, low-carbon infrastructure developments, and water efficiency initiatives, even as global issuance declined by 21% over the same period. However, recent geopolitical tensions—triggered by the Gulf conflict following U.S. and Israeli strikes against Iran in February, have disrupted this progress.
The conflict’s fallout has created instability in energy markets, raised bond yields, and tightened financial conditions, all of which have weakened sustainable finance. Through the first half of 2026, issuance fell 24% compared to the same period last year, according to S&P Global. While the region began the year strongly, with $5 billion in deals in the first quarter alone, total first-half issuance dropped to $7 billion, down from $10 billion in 2025. Analysts have since adjusted their 2026 outlook downward, now forecasting issuances between $15 billion and $20 billion, down from the previous estimate of $20 billion to $25 billion.
Sustainable sukuk, Islamic finance instruments linked to sustainable projects, have also seen a sharp slowdown. Issuance in the first half of 2026 reached only $2.1 billion, less than half of the $5.1 billion recorded in the same period the prior year. The decline stems from broader market uncertainty, though a significant share of MENA’s sustainable bonds continues to be issued in local currencies, reflecting the region’s growing attractiveness for socially responsible investments.
Investor caution persists, but withdrawal has not been total. Patrice Cochelin, managing director of Sustainability Methodology and Research at S&P Global, observed that medium-term demand remains solid, supported by energy transition strategies and a backlog of maturing bonds. The International Finance Corporation recently pledged $100 million to Jordan Kuwait Bank’s second green bond, demonstrating ongoing investor engagement despite the slowdown.
Banks remain the primary engine of MENA’s sustainable finance expansion. In 2025, they accounted for 80% of the region’s issuance by value, and their share increased to 87% in the first half of 2026. Saudi Arabia and the United Arab Emirates lead the way, contributing 98% of the total value and 73% of the volume. The conflict’s economic consequences, higher borrowing costs, slower growth, and geopolitical instability, have strained this momentum, yet the commitment to green and sustainable initiatives endures.
At present, the region’s sustainable bond market faces competing pressures: the enduring drive for long-term energy transition goals versus the immediate challenges posed by geopolitical and economic disruptions. Whether demand stabilizes or continues to decline will hinge on investors’ ability to balance risk tolerance with the uncertainties ahead.
