Today's Edition
A. SREENIVASA REDDY (ABU DHABI)
The UAE's sustainable bond market is expected to maintain its strong momentum in 2025, with issuance projected to remain in line with 2024 levels, according to a report from S&P Global Ratings.
Total sustainable bond issuance in the Middle East could reach between $18 billion and $23 billion in 2025, with the UAE and Saudi Arabia leading the market, according to an estimate from S&P Global Ratings.
The financial sector continues to play a significant role, with major UAE banks, including Dubai Islamic Bank, First Abu Dhabi Bank, and Emirates Islamic Bank, among the top issuers of green and sustainability bonds.
The UAE Banks Federation has pledged to mobilise over Dh1 trillion ($272 billion) in sustainable finance by 2030, further reinforcing the sector's commitment to sustainability.
In 2024, green bond issuance in the UAE was largely concentrated in the energy sector, particularly in solar power projects. Companies such as Masdar, a leading renewable energy developer, played a crucial role in issuing green bonds to finance clean energy initiatives. Beyond energy, other key sectors driving issuance include logistics, real estate, and tourism.
The emirate of Sharjah has also been a notable player in the sustainability bond market, with the government issuing multiple sustainability bonds in 2024. Sovereign issuances remain an essential component of the UAE's sustainable finance landscape, ensuring long-term investments in environmental and social projects.
The market has also seen an increased focus on social bonds, albeit at a slower pace compared to sustainability bonds. RAK Bank was the sole issuer of a social bond in 2024, raising $600 million to support micro, small, and medium-sized enterprises (MSMEs) and expand access to healthcare services. While social bond issuance remains limited, financial inclusion, affordable housing, and access to essential services present significant growth opportunities in this segment.
S&P Global Ratings expects new types of sustainable bonds to emerge in 2025, with increased interest in blue bonds and transition bonds. Given the UAE's exposure to water scarcity and hydrocarbons, blue bonds, which finance sustainable maritime and water-related projects, are anticipated to gain traction. DP World issued the UAE's second-ever blue bond in 2024, signalling a growing interest in this category.
The regulatory environment is also evolving to support sustainable finance. Guidance on green, social, and sustainability sukuk issued by the International Capital Market Association (ICMA) in April 2024 is expected to enhance transparency and stimulate further growth in Islamic finance-linked sustainable bonds. Saudi Arabia and the UAE, the two largest markets for sustainable sukuk, are likely to benefit from this increased clarity.
Looking ahead, renewable energy projects, particularly solar energy, will remain a primary driver of green bond issuance. The UAE continues to leverage its high solar irradiance levels to expand clean energy production, aligning with its long-term climate goals. In addition, government-led initiatives and regulatory support will play a crucial role in sustaining the growth of sustainable finance in the country.
