Green finance is shrinking worldwide, but in the Gulf it is quietly growing

Green finance is having a difficult year almost everywhere. Sustainable bond issuance fell by around a fifth worldwide as higher costs and political headwinds cooled the market. Against that backdrop, one region stands out for moving in the opposite direction. In the Gulf, issuance edged up rather than down, and the market is now expected to reach somewhere between 20 and 25 billion dollars over the year. When a market grows while the global version of it contracts, that divergence is worth understanding, because it usually points to a structural strength rather than a passing trend.

The clearest sign of that strength is the instrument the region has made its own. Sustainable versions of Islamic bonds, known as sukuk, reached a record in the Middle East last year, rising to 11.4 billion dollars from 7.9 billion the year before. This matters because it pairs two things the region already does well, Islamic finance and the funding of large infrastructure, and channels them toward clean energy and sustainability. Rather than importing a green finance model built elsewhere, the Gulf is adapting its own financial traditions to the task, which is a far more durable foundation than following a global fashion.

Why the Gulf is different

The divergence is not an accident. It rests on a combination of factors that happen to line up in the region's favour. Most governments across the Gulf have committed to net zero targets, which creates a steady, policy-backed demand for the capital that funds the transition. Expectations of lower interest rates make borrowing to build cheaper. And the underlying projects are unusually well suited to the geography, since abundant sunlight makes solar power the natural anchor for the region's green bond market. Put together, a clear policy signal, favourable financing conditions and a genuine pipeline of projects to fund is exactly the mix that keeps a market growing when others stall.

• Global sustainable bond issuance fell by around 21 percent, while the Gulf's rose by about 3 percent.
• Regional issuance is expected to reach 20 to 25 billion dollars over the year.
• Sustainable sukuk in the Middle East hit a record 11.4 billion dollars, up from 7.9 billion.
• Most Gulf governments have committed to net zero targets, anchoring long-term demand.
• Renewable energy is the main use of proceeds, with solar especially strong in the region.
• Regulation is tightening, with new rules requiring companies to measure and reduce emissions.

The UAE is turning intent into rules

The UAE illustrates how the ambition is being made concrete. Alongside its commitment to reach net zero by 2050, the country has moved from encouragement to obligation, introducing a law that requires companies to measure, report and reduce their greenhouse gas emissions. That shift matters more than any single bond issue, because once emissions must be measured and cut by law, every business acquires a reason to seek green financing, and the demand for it stops depending on goodwill. Regulation of this kind is what turns a voluntary market into a structural one, and it is the quiet engine underneath the headline numbers.

Our reading

Three points stand out. First, growth in a market that is shrinking globally is the strongest possible evidence that the Gulf's green finance is built on fundamentals rather than sentiment, since sentiment moved the other way and the region did not follow. Second, the rise of sustainable sukuk is the most important development, because it fuses the region's financial heritage with the demands of the energy transition and gives it an instrument that is genuinely its own. Third, the move from targets to binding rules, most visibly in the UAE, is what converts ambition into durable demand for capital, and it is why the momentum looks likely to persist rather than fade. We read the region's green finance market as one more example of a broader pattern, the UAE and its neighbours taking a global idea and rebuilding it on foundations strong enough to grow when the rest of the world retreats.