Stock - FAB / First Abu Dhabi Bank
UAE companies were once again the region's most active, with First Abu Dhabi Bank making three green bond issuances totalling $788 million. Image Credit: Clint Egbert/Gulf News

There was a point in 2021 when green finance in the Middle East and North Africa (MENA) region was growing faster than the world as a whole. In the first six months of that year, issuances of green and sustainability-linked debt amounted to $6.4 billion, outstripping the global growth rate, and more than a third higher than total 2020 volumes.

Fast forward a year and the MENA market is down.

The total value of green bonds in the MENA region in the first-half of 2022 was approximately $2.05 billion, and sustainability-linked loans $1.25 billion, according to Bloomberg’s Capital Markets League Tables, significantly down on the same period of last year. That is not to say that 2022 has been without notable transactions.

Aluminium Bahrain’s $1.247 billion sustainability-linked loan continued the country’s increasing participation in the green finance market, while UAE companies were once again the region’s most active, with First Abu Dhabi Bank (FAB) making three green bond issuances totalling $788 million and Sweihan PV Power issuing one of $700.8 million.

The trend overall for the start of 2022, however, has been downwards. The reasons for the MENA dip lie outside of the region, with the root causes the same as those that have dented the global economy in 2022: geopolitical tensions, economic uncertainty, rising interest rates and increasing oil prices.

The downward trend in the MENA region also reflects the global picture for green and sustainability-linked debt in the first-half of the year. Globally, the most affected form of green finance in the first-half has been sustainability-linked loans, which are down approximately 12.5 per cent. Green bonds have been less affected, slipping only 3.2 per cent while continuing to attract significant interest, including two more issuances by the European Union following its 2021 debut.

Looking further ahead, assuming it expands at only a third of the pace of the last five years, the global market for green and sustainability-linked debt could potentially swell to $15 trillion by 2025 as the world keeps pushing towards net-zero.

The MENA region has the potential to make an important contribution, particularly with COP27 and COP28 taking place in Egypt and the UAE. The upcoming global climate meetings are likely to support activity locally, particularly in the most established markets that have already set ambitious targets and are investing in clean energy projects. In Saudi Arabia, for instance, the government is said to be preparing to issue its first green bond later in 2022.

Will high oil deter?

In these countries, and across the region, the spotlight will focus on how companies and governments are helping to build a more sustainable future, with both consumers and investors likely to advocate more loudly for them to meet their existing commitments and accelerate the pace of change. However, it is a time of significant uncertainty and if oil prices continue rising and inflation persists, the positive effect on green finance may be lessened, with new issuances potentially limited to fulfilling capex and refinancing requirements.

Until recently, the MENA region was outpacing the world as its market for green finance deepened and matured, backed by ambitious governments, companies and financial institutions. With the next two COP meetings taking place in the region, there is an opportunity once again for the region to lead.