The Rise of Green and Sustainable Sukuk in the Gulf
Islamic finance and environmental sustainability are converging at speed across the GCC. Green sukuk — Sharia-compliant fixed-income instruments whose proceeds fund environmentally beneficial projects — grew from a niche concept in 2017 to a multi-billion-dollar asset class by the end of 2024. The Gulf Cooperation Council states, with their unique combination of hydrocarbon wealth, ambitious national visions, and deepening capital markets, sit at the centre of this convergence.
In 2024 alone, GCC-domiciled issuers brought more than USD 11 billion of green, sustainability, and sustainability-linked (GSS) sukuk and bonds to market, a 28 per cent increase on 2023. Qatar National Bank (QNB), First Abu Dhabi Bank (FAB), Saudi National Bank, and the Saudi sovereign all featured prominently. The trajectory for 2025 points to further acceleration as regulatory mandates, investor expectations, and national climate commitments create reinforcing demand.
Key Issuances and Frameworks: A 2024 Snapshot
Qatar
QNB issued its second green bond in 2024, raising USD 1 billion under its Sustainable Finance Framework aligned to ICMA Green Bond Principles. Eligible categories include renewable energy, clean transport, green buildings, and pollution prevention. Qatar Islamic Bank also updated its sustainable finance framework to incorporate climate transition categories aligned with Qatar's National Environment and Climate Change Strategy (QNE&CCS).
United Arab Emirates
FAB remained the GCC's most prolific ESG-labelled issuer, with cumulative GSS issuance exceeding USD 7 billion. Abu Dhabi's Masdar tapped the green bond market to finance solar and wind projects, while ADNOC issued its inaugural transition sukuk linked to carbon intensity reduction targets in its upstream operations. The UAE's Sustainable Finance Framework, introduced by the Securities and Commodities Authority (SCA) in 2023, drove a 40 per cent increase in labelled issuance from UAE entities in 2024.
Saudi Arabia
Saudi Arabia's Public Investment Fund (PIF) issued a USD 3.5 billion green bond — the largest single ESG-labelled issuance from the GCC to date — channelling proceeds to NEOM's green hydrogen facilities, the Red Sea regenerative tourism development, and Riyadh Metro expansion. The Saudi Capital Market Authority (CMA) published draft ESG disclosure guidelines in late 2024, signalling regulatory tailwinds for the labelled market.
Bahrain, Oman, and Kuwait
Bahrain's sovereign issued a USD 600 million sustainability sukuk, and Oman's OQ Group raised USD 500 million through a transition bond for gas-to-liquids efficiency projects. Kuwait, while lagging its peers in labelled issuance, saw Kuwait Finance House launch a sustainability-linked syndicated facility with emissions intensity KPIs.
Green Bond Frameworks: What Makes Them Credible?
A green or sustainable sukuk is only as credible as the framework that governs its use of proceeds and impact reporting. International standards — the ICMA Green Bond Principles, the Climate Bonds Standard, and the EU Green Bond Standard — provide the architecture, but GCC issuers face specific challenges in demonstrating credibility:
- Use-of-proceeds verification: Investors need assurance that funds actually flow to eligible categories. External review (second-party opinion from Sustainalytics, Moody's, ISS, or CICERO) is standard, but post-issuance impact reporting remains inconsistent.
- Environmental data quality: Impact reports require robust GHG emissions data, energy savings calculations, water savings metrics, and biodiversity outcomes. The quality of this data depends on the verification rigour applied at project level.
- Taxonomy alignment: The EU Taxonomy, ASEAN Taxonomy, and emerging GCC-specific taxonomies (Dubai Financial Services Authority green taxonomy consultation, 2024) each define "green" differently. Issuers targeting global investors must demonstrate alignment with multiple frameworks.
- Transition credibility: For hydrocarbon-linked issuers, transition bonds and sustainability-linked instruments face heightened greenwashing scrutiny. Credible science-based targets and third-party verified emissions pathways are essential.
The Critical Role of Verified Environmental Data
Green finance frameworks create demand, but verified environmental data creates trust. The chain from project-level measurement to investor-facing reporting has several links where quality can break down:
| Data Point | Source | Verification Standard |
|---|---|---|
| GHG emissions avoided or reduced | Project monitoring | ISO 14064-2, CDM methodology |
| Energy efficiency gains | Engineering calculations, IPMVP | ISO 50001 audit |
| Water savings | Metering, mass balance | ISO 46001 |
| Biodiversity net gain | Ecological survey, offset registry | IFC PS6, CSBI |
| Organisational carbon footprint | GHG inventory | ISO 14064-1, GHG Protocol |
For GCC issuers, GAB-accredited verification bodies (accredited under ISO 14065) provide the highest level of assurance for GHG-related claims. This accreditation means the verifier itself has been independently assessed for competence, impartiality, and methodological rigour — a critical differentiator when global investors compare ESG-labelled instruments from different jurisdictions.
Impact reporting without third-party verification is marketing. Impact reporting with accredited verification is finance-grade disclosure.
ESG Ratings and Their Impact on Pricing
ESG ratings from agencies such as MSCI, Sustainalytics, and S&P Global now materially affect the cost of capital for GCC issuers. A 2024 study by KAMCO Invest found that GCC corporate bonds from issuers rated in the top ESG quartile traded at an average spread compression of 15–25 basis points compared to bottom-quartile peers. For a USD 1 billion issuance, this translates to annual interest savings of USD 1.5–2.5 million.
The ratings themselves depend on disclosed and verified data. Issuers that invest in robust GHG inventories, environmental management systems (ISO 14001), and climate risk assessments consistently score higher. Qatar-listed companies on the QSE that have adopted structured ESG reporting frameworks saw average Sustainalytics risk scores improve by 12 per cent between 2022 and 2024.
Sustainable Finance Taxonomy: The GCC Landscape
Unlike the EU, the GCC does not yet have a unified green taxonomy, though progress is accelerating:
- DFSA (Dubai): Published a consultation paper on a climate transition taxonomy in Q3 2024, with categories for green, transition, and social activities tailored to regional economic structures.
- Saudi Arabia: The Saudi Central Bank (SAMA) and CMA are developing a national sustainable finance taxonomy expected for release in 2025, drawing on the Common Ground Taxonomy bridging EU and Chinese systems.
- Qatar: The Qatar Financial Centre Regulatory Authority (QFCRA) has signalled intent to develop taxonomy guidance aligned with ISSB standards, likely building on Qatar Central Bank's ESG risk management circular of 2023.
- UAE: The Abu Dhabi Global Market (ADGM) updated its sustainable finance regulatory framework in 2024, incorporating ISSB-aligned disclosure requirements for listed entities.
The absence of a harmonised GCC taxonomy creates both risk and opportunity. Issuers that proactively align with international best practice — ICMA Principles plus ISSB-aligned disclosure — position themselves for seamless compliance as regional taxonomies crystallise.
2025 Outlook: Five Trends to Watch
1. Sovereign Green Sukuk Pipeline
Qatar, Oman, and Bahrain are all expected to tap the sovereign green sukuk market in 2025. Qatar's issuance would be its first sovereign green instrument and would likely fund renewable energy, district cooling, and Lusail City infrastructure.
2. Transition Finance Growth
Hydrocarbon-linked transition instruments will grow as ADNOC, QatarEnergy, and Saudi Aramco seek to fund decarbonisation within existing asset portfolios. Credibility will hinge on science-based transition plans and verified emissions trajectories.
3. Regulatory Mandates
Mandatory ESG disclosure requirements from QSE, ADX, and Tadawul will increase the supply of verified environmental data, in turn supporting the labelled bond market's need for impact reporting.
4. Climate Bonds Certification
Expect more GCC issuers to pursue Climate Bonds Initiative (CBI) certification, which provides a post-issuance verification requirement and boosts investor confidence, particularly among European institutional buyers.
5. Blended Finance Structures
Multilateral development banks (IsDB, AIIB) are increasingly co-structuring blended finance facilities with GCC issuers, combining concessional and commercial tranches to fund climate adaptation projects across the MENA region.
Practical Implications for GCC Organisations
Whether an organisation is considering issuing a green sukuk, investing in one, or simply responding to the ESG data demands that sustainable finance creates, several practical steps apply:
- Build a robust GHG inventory: ISO 14064-1 compliant, covering Scope 1, 2, and material Scope 3 categories. This forms the baseline for any emissions-related impact claim.
- Engage accredited verification: Use a GAB-accredited (ISO 14065) verification body for GHG statements. This is the gold standard for investor-grade assurance.
- Develop a sustainable finance framework: Align with ICMA Principles and emerging GCC taxonomy guidance. Ensure eligible project categories match actual capital expenditure plans.
- Invest in environmental management systems: ISO 14001 certification demonstrates systematic environmental governance — a prerequisite for credible green finance claims.
- Integrate EIA and PS compliance data: For project-specific green bonds, Environmental Impact Assessment outputs and IFC Performance Standards compliance evidence feed directly into impact reporting.
Conclusion
The GCC's sustainable finance market is maturing rapidly, driven by sovereign ambition, regulatory evolution, and global investor demand. But the market's long-term credibility depends on the quality of underlying environmental data. Organisations that invest in rigorous measurement, accredited verification, and transparent reporting will not only access green capital more cheaply — they will help build a sustainable finance ecosystem that withstands the growing scrutiny of regulators, rating agencies, and civil society.
As Qatar and its GCC neighbours accelerate their green bond pipelines in 2025, the organisations that thrive will be those that treat environmental data not as a compliance burden but as a strategic asset for capital market access.