MENA green finance focus switching from issuance to impact
The Middle East and North Africa (MENA) region’s syndicated market for green, social, sustainable and sustainability-linked (GSSS) bonds has been moving towards the mainstream for several years. Listed companies now routinely publish ESG policies and annual sustainability reports, while the volume and value of issuances has risen steadily. As the climate crisis becomes more urgent, however, attention is now moving to the most important aspect of green finance: its impact.
There is a critical need for companies to measure sustainability through quantifiable, data-driven methods. As seen in 2023, there has been a notable increase in the growing issuance of green bonds, both conventional and Islamic. According to data from Bloomberg’s Capital Markets League Tables, an authoritative source of financial data, total MENA GSSS bond issuances reached $21.4 billion in the first nine months of the year, a 150% increase. Growth is being led by the UAE, which has nearly 40% of market share with volumes of $9.4 billion, and Saudi Arabia, which has 35% or $7.76 billion.
A raft of organisations including Aldar Investments, Al Rajhi Bank, DP World, and First Abu Dhabi Bank (FAB), among others, issued debut green/sustainable sukuk in 2023, as the MENA region increasingly utilises instruments first popularised in Indonesia and Malaysia. Green and sustainable sukuks are gaining particular attention in the Gulf region due to the dual considerations of allocating funds towards both environmentally friendly and shariah-compliant projects. DP World’s September $1.5 billion issuance has been a standout in an exceptional year for green sukuk, with volumes nearly doubling so far in 2023 to $6.05 billion.
For the region’s more established conventional green bond market, there has been an evolution in the scale and ambition of issuances. Masdar’s first $750 million green bond will enable investment in renewable energy and energy efficient projects. TAQA’s $1 billion issuance will mainly be invested in eligible green projects, including renewable energy, clean transport, energy efficiency and sustainable water. FIVE Holdings’ $350 million issuance will be directed primarily towards investment into solar projects and green buildings.
These issuances all point to an increasing focus on the impact of issuances and clearly setting out where and how capital will be deployed to support sustainability goals. For instance, many securities issued this year are being directed towards green and blue hydrogen projects over and above the traditional sources of renewable energy. This is an important development, but there is still more to be done.
As the market matures with an increasing pool of both repeat and debut issuers, investors are gradually moving their attention to the impact these instruments are having on society. To accurately understand this impact, we need consistent, regular, and standardised reporting. Bloomberg plays a pivotal role in this aspect, offering a wealth of data and analytics that aid in tracking, analysing, and reporting on the performance and impact of green finance instruments both regionally and globally.
Reports are usually available on the issuer’s website one year from the bond issuance date. These provide important information on the investment of funds in the stated projects and their respective impact, in the form of carbon reductions, energy savings or other factors. A good report highlights the bonds that were issued during a certain period, the total proceeds invested, details about each project and the sustainable development goals it meets, and its impact indicators. Importantly, a reputable third party should also provide assurance regarding the accuracy of the report and the impact of the instruments detailed within it. This is the gold standard that an increasing number of the region’s GSSS issuers are aiming for.
As green finance in the MENA region evolves, it is encouraging to see the focus shift to the sector’s purpose: mobilising capital to drive tangible progress towards a low-carbon future.