Sustainable Bond Demand Faces Regional Turbulence

Investors show resilience to uncertainty, yet are not risk-averse, as evidenced by the burgeoning demand for sustainable bonds in the Middle East and North Africa (MENA) region. This region has become a hotspot for sustainable finance, particularly as economies transition towards renewable energy, low-carbon infrastructure, and water efficiency.

Sustainable bond issuance in the MENA has surged sevenfold since 2020, reaching a record high of $35.1 billion in 2025, according to Bloomberg Intelligence. Despite a global market decline of 21% last year, the region's issuance remained strong, growing in the face of challenges.

However, the momentum is cooling. The ongoing Gulf conflict, fueled by U.S. and Israel attacks on Iran in February, coupled with higher energy prices, increasing bond yields, weaker growth, and tighter financial conditions, has seen a 24% decline in sustainable bond offerings during the first half of 2026, according to S&P Global.

While deals began the year with a strong $5 billion in the first quarter and $4 billion in January alone, the overall volume has dropped to $7 billion in the first half of 2026, a significant decrease from the $10 billion in the same period last year. This has prompted S&P Global to revise its 2026 projection, forecasting issuances between $15 billion and $20 billion, down from the earlier estimate of $20 billion to $25 billion.

Another area cooling is sustainable sukuk issuance, which saw a notable drop from $5.1 billion in the first half of 2025 to $2.1 billion in the same period this year. Despite this cooling, investor confidence remains intact, according to Patrice Cochelin, managing director of Sustainability Methodology and Research at S&P Global.

Cochelin highlighted that medium-term demand drivers remain positive, driven by energy-transition strategies and a substantial pipeline of upcoming maturities. This resilience is evident, as seen with the International Finance Corp.'s recent $100 million investment in Jordan Kuwait Bank’s second green bond issuance.

Banks are playing a pivotal role in the expansion of sustainable finance in the Middle East. In 2025, they participated in some of the largest regional issuances, accounting for 80% of the total value. This year, their involvement has increased to 87% by volume. Saudi Arabia and the United Arab Emirates continue to be the epicenter of this activity, contributing 98% by value and 73% by volume.

John Njiraini, a contributing writer based in Kenya, reports that this trend underscores the region's growing status as a haven for value-driven dealmaking, particularly with a significant portion of sustainable bond issuance denominated in local currencies.