The combined value of green, social, sustainable, and sustainable-linked bonds (GSSSB) issuances in the UAE and Saudi Arabia reached $16.1 billion in the first nine months of 2023, S&P Global Ratings said in a new report.

Individually, the UAE and Saudi GSSSB issuances stood at $8.4 billion and $7.7 billion, respectively, making up 43% and 40% of the GSSSB in the region.

Direct sovereign issuance comprised 71% of the total number of issuances in Saudi Arabia - all through sovereign Public Investment Fund  issuances. This compares with 12% for the UAE, with government-related entities (GREs), including corporates and banks, driving issuances.

GSSSB bond issuance, including sustainable sukuk, in the Middle East more than quadrupled year-on-year (YoY) to $19.4 billion in the first nine months of 2023.

However, GSSSB issuance is less than 1% of the GDPs of the Middle East countries, with the Middle East accounting for less than 3% of global GSSSB issuance.

The demand for GSSSB issuance in the region is sensitive to oil prices, inflation, and interest rates, which could impact funding and regulations, S&P said.

According to the United Nations Adaptation Gap Report 2022, the Middle East and North Africa need to spend a median of $15 billion annually between 2021 and 2030 on adaptation finance projects.

“As a result, we expect green bonds to remain prevalent in the region (86% as of the first nine months of 2023), and we expect the issuance of social bonds to remain comparatively low,” the report said.

Green bonds are expected to continue driving regional GSSSB issuance over the next three to five years, S&P noted.

(Editing by Seban Scaria )