In the pursuit of net zero, sectors like oil and gas, energy, and transportation often lead the narrative. Yet, the financial sector, as a facilitator of economic activity, plays an equally indispensable role in global climate efforts. 

Financial institutions (FIs) are transitioning to sustainable finance and aligning with net zero goals, making it an imperative to measure greenhouse gas emissions from their business activities—i.e., financed emissions. Given this, the investment and lending decisions of these institutions act as central support systems, directly influencing the pace of this transition. 

According to Standard Chartered’s net zero roadmap, financed emissions account for a staggering 98.7% of total emissions, while operational emissions make up just 0.1%. This large gap signals the urgent need for FIs to prioritise addressing financed emissions in order to achieve meaningful progress toward net zero goals. 

 

By embracing net zero targets and transparently reporting emissions–banks, asset managers, and insurers actively safeguard the planet while managing climate risks to protect their portfolios. 

This transition demands collaboration, not just individual efforts. Global initiatives and standardised frameworks stabilise the net zero agenda and equip FIs with tools and guidance that aid them in aligning with climate goals. 

Global Forces Guiding Climate Commitments 

The Glasgow Financial Alliance for Net Zero (GFANZ) drives the financial sector’s commitment to sustainability. GFANZ unites over 675 institutions managing 40% of global private assets, each pledging to decarbonise their portfolios by 2050. Frameworks like the Task Force on Climate-related Financial Disclosures (TCFD) guide FIs as they evaluate and disclose climate risks.  

Meanwhile, the Partnership for Carbon Accounting Financials (PCAF) sets a global standard for measuring and tracking financed emissions. Across the GCC, eight FIs have joined PCAF, reflecting a growing commitment to transparent emissions accounting. FIs consistently use PCAF as their preferred framework as it aligns with industry needs and simplifies emissions accounting across portfolios.  

Sustainable Square’s in-house Financed Emissions Tool supports financial institutions in assessing their climate impact by calculating and analysing greenhouse gas emissions associated with their financed activities, aligning with the PCAF framework. 

Complementing these efforts, the Science-Based Targets initiative (SBTi) is developing a Financial Institution Net zero (FINZ) standard, which is set to launch in 2025. Currently, the UAE leads in the GCC region with three FIs actively participating in SBTi, accentuating the region’s increasing engagement in science-based climate action. This standard will help align portfolios with global climate targets and ensure FIs take measurable steps in the low-carbon transition. 

Advancing Net Zero in the GCC 

The financial sector’s commitment to achieving net zero is non-negotiable for the GCC, given its heavy reliance on oil and gas. Although reaching sustainability goals poses unique obstacles for these economies, the region has demonstrated a strong focus on net zero targets. For instance, Oman plans to achieve net zero emissions by 2050, and Bahrain targets carbon neutrality by 2060. These goals align with national visions such as Oman Vision 2040 and Bahrain Economic Vision 2030, which aim to diversify and fortify their economies. 

FIs in the GCC are advancing sustainable finance by issuing green and sustainability-linked bonds, sukuks, and loans, while enhancing transparency in carbon accounting. In 2024, sustainable bonds comprise 15–20% of the region’s total issuances, outpacing the global average of 12–14%. 

A notable example is Emirates NBD’s $750 million green bond issued in 2023 to fund projects in renewable energy, green buildings, and clean transportation. These projects include the Mohammed bin Rashid Solar Park in Dubai and Saudi Arabia’s NEOM Green Hydrogen Project, which is expected to produce 600 tonnes of green hydrogen daily by 2026. Together, these initiatives are projected to prevent over 4.65 million tonnes of carbon emissions annually. 

Aligned with the UAE’s Net Zero 2050 strategy, Emirates NBD’s portfolio reveals the role of sustainable finance in supporting a low-carbon economy, setting a benchmark for FIs across the GCC. 

Essential Drivers of Change for Financial Institutions 

Beyond creating and issuing green finance instruments, FIs need to explore the right tech stack and adopt innovative strategies to build a strong foundation for external financing efforts.  

Core Tools Driving Change  

• Carbon Accounting Software: Enables institutions to track, manage, and report operational and financed emissions in line with frameworks like TCFD, while leveraging a built-in library of emission factors to ensure accurate, validated and efficient reporting.  

• AI-Driven Data Visualisations: Simplifies emissions tracking with customisable dashboards and graphs, offering actionable insights and progress monitoring towards net zero goals. 

• Centralised Data Hub: Streamlines access to critical information, improving organisational decision-making and ensuring compliance. 

• Automation for Efficiency: Automates data collection and review processes, reducing resource burdens and allowing staff to focus on sustainability training and long-term objectives. 

• Role-Based Validation: Ensures data accuracy by assigning specific roles for entry and approval, enhancing overall reliability. 

Sustainable Square’s AI-powered ESG solution offers a comprehensive suite of tools to support financial institutions in their journey to net zero. From emissions tracking to data visualisation and automation, SQUARELY empowers institutions to align with global climate goals and drive lasting impact. 

What COP29 Means for Financial Institutions 

The COP29 conference, dubbed as the ‘Climate Finance COP,’ has reshaped the finance sector’s net zero commitments further. Key outcomes include the confirmation of a new climate finance target, requiring developed nations to provide $300 billion annually by 2035 to support developing countries in addressing climate change. These funds are expected to be directed towards two main areas: preparing for the impacts of climate change and facilitating the transition away from emissions-producing fossil fuels. For FIs, this raises the bar on accountability and transparency, as funding flows will be scrutinised to ensure alignment with net zero goals. 

Stricter global standards and reporting requirements are now on the horizon, particularly for institutions financing high-emission sectors such as energy and manufacturing. Policymakers and stakeholders demand enhanced transparency, which could compel FIs to align their objectives more closely with frameworks like the SBTi and the GFANZ. These frameworks not only guide institutions in setting credible climate targets but also help them demonstrate how their financial strategies contribute to net zero pathways. 

To bridge the gap between ambition and action, financial institutions must actively participate in shaping sustainable finance practices. The private sector and regulators need to engage in meaningful dialogue to create policies that incentivise low-carbon investments. Governments and organisations are fundamental in raising awareness, providing risk-sharing mechanisms, and enabling impactful investments across all levels—from commercial entities to individual consumers. 

Conclusion 

FIs form the backbone of the global net zero agenda and have the power to shape a sustainable future. As COP29 redefines the finance sector’s role in climate action, the challenge becomes clear: will your organisation rise to the occasion, or will it risk slipping behind in the push for a low-carbon economy? 

In our previous articles, we explored the growth of sustainable finance in the Middle East and GCC, highlighting ESG investments and instruments like green bonds and sukuks. This third article serves as a practical guide to implementing a sustainable finance framework, from foundational steps for newcomers to advanced practices for those experienced in sustainable finance. This framework will support investments aligned with ESG goals, contributing to a more sustainable economy. 

a. Foundations of a Sustainable Finance Framework 

Implementing a sustainable finance framework starts with the established guidelines from the International Capital Market Association (ICMA) and Loan Market Association (LMA). These principles set standards for transparency, accountability, and alignment with sustainability goals. 

 

For Green, Social, and Sustainability (GSS) Bonds or Loans, the first step is defining the Use of Proceeds. Organisations identify project categories—such as renewable energy or affordable housing—that will directly benefit from these funds, ensuring alignment with broader sustainability objectives. 

The Process for Project Evaluation and Selection follows. This step involves evaluating projects against pre-defined sustainability criteria, ensuring only qualified projects receive financing. This rigorous selection strengthens accountability and signals a commitment to transparency and high standards. 

Once projects are selected, organisations must ensure effective Management of Proceeds. Robust tracking mechanisms monitor the flow of funds, preventing misallocation and enabling timely adjustments. This tracking builds confidence among stakeholders and reinforces the credibility of the financial instrument. 

Finally, Reporting is essential for transparency and accountability. Regular reporting keeps investors and regulators informed of fund allocations and project impacts. It reinforces stakeholder trust and ensures compliance with ICMA and LMA guidelines, establishing a culture of openness that benefits long-term investor relationships. 

For Sustainability-Linked Instruments, the framework focuses on performance-based targets. The first step, Selection of Key Performance Indicators (KPIs), involves identifying metrics that reflect the organisation’s sustainability goals and areas of impact, ensuring they are relevant and measurable. 

Next is the Calibration of Sustainability Performance Targets (SPTs). SPTs should be ambitious yet achievable, balancing industry benchmarks with internal capabilities. Realistic targets reinforce investor trust, demonstrating both ambition and feasibility. 

In defining Bond or Loan Characteristics, the instrument’s financial terms are tied to the achievement (or non-achievement) of SPTs. This alignment embeds accountability within the financial structure, linking returns to progress on sustainability goals. 

 Reporting is equally essential here, offering transparency on KPI progress and enabling stakeholders to track performance. Last is Verification by an external third party provides credibility, with an unbiased assessment of the organisation’s achievements. 

b. Types of Sustainable Finance Instruments 

A sustainable finance framework often incorporates three types of instruments: Green, Social, and Sustainability-Linked. Each serves a distinct purpose, with unique eligibility criteria. 

Green Bonds/Loans fund projects specifically focused on environmental benefits. Eligible projects typically include renewable energy, energy efficiency, pollution prevention, biodiversity preservation, sustainable water management, climate adaptation, and green building initiatives. These projects aim to reduce environmental impact and foster resource conservation. Noor Abu Dhabi is an example of a green project financed through the issuance of a green bond. The project is one of the world’s largest solar power plants which generates approximately 1.2 GW of solar energy, reducing CO₂ emissions by nearly one million metric tons annually—equivalent to removing 200,000 cars from the road. 

Social Bonds/Loans finance projects with direct social benefits, focusing on underserved or vulnerable populations. Eligible initiatives include affordable infrastructure (e.g., water, sanitation, clean energy), essential services (e.g., healthcare, education), affordable housing, food security, and socioeconomic empowerment programmes. Social instruments drive positive societal change through improved access and opportunity. For example, The IFC committed, through its Social Bond programme, to lend $5 millions to Vitas Palestine, a microfinance company operating in West Bank & Gaza. The company serves MSMEs and individual borrowers by providing several lending products including business loans, housing loans and consumption loans. The project will provide financing to SMEs and WSMEs. 

Sustainability-Linked Instruments differ from green and social bonds in that they link financial terms to the issuer’s achievement of specific sustainability goals. Sustainability-Linked Loans (SLLs) adjust economic characteristics based on the borrower’s performance against measurable sustainability objectives. Similarly, Sustainability-Linked Bonds (SLBs) adjust their financial or structural terms based on predefined ESG targets. Unlike green or social bonds, these are forward-looking, performance-based tools that incentivise continuous sustainability improvements. Bapco launched in 2023 a Sustainability-Linked Finance Framework, to issue a Sustainability-Linked Bond, supporting oil and gas projects, which would be excluded in GSS bonds, by adopting sustainable goals and KPIs. 

c. Advanced Recommendations for Experienced Practitioners 

Organisations experienced in sustainable finance can deepen their frameworks with advanced strategies to drive greater impact. 

Integration of Digital Solutions: Leveraging digital technologies like blockchain and AI can enhance reporting accuracy and real-time tracking of sustainability metrics, which simplifies compliance and strengthens investor confidence. Automated processes also reduce operational costs, promoting efficiency. 

Advanced Impact Measurement: Experienced organisations benefit from outcome-based reporting. Beyond project-specific impacts, they can assess broader societal and environmental changes through tools like Social Return on Investment (SROI). This level of impact measurement deepens accountability and adds value for investors seeking measurable results. 

Dynamic Frameworks: Sustainable finance frameworks should adapt to shifting regulations, market expectations, and evolving sustainability goals. Organisations can establish mechanisms to recalibrate KPIs and SPTs as needed, maintaining relevance and aligning with long-term sustainability priorities. 

Stakeholder Engagement and Transparency: Engaging stakeholders proactively enhances credibility. Organisations can use third-party platforms to provide updates and invite feedback, ensuring that financial activities meet both internal and external expectations. Enhanced transparency builds strong, long-term relationships with stakeholders. 

Conclusion: Advancing Sustainable Finance in the Middle East and GCC 

The Middle East and GCC have made significant strides in sustainable finance, driven by national goals and proactive climate commitments. Implementing a sustainable finance framework rooted in ICMA and LMA principles provides a solid foundation, and advanced practices help experienced organisations achieve greater impact. Through these frameworks, the region can continue supporting climate transition goals and fostering a sustainable economic future. 

The oil and gas (O&G) industry has been a significant contributor to global greenhouse gas emissions. The industry, which is a cornerstone of the world’s energy supply, is undergoing significant transformation as it grapples with the urgent need to address climate change. The O&G industry, during this transformation, has realised the need to reduce emissions and transition towards a low-carbon future. The concept of net-zero emissions has gained momentum globally, and the oil and gas industry is no exception.

The GCC region has a significant share of the world’s oil and gas reserves. This makes it crucial for the region to adopt sustainable practices and transition towards net-zero emissions. The region has already made strides towards reducing emissions by implementing carbon capture and storage, increasing energy efficiency, and investing in renewable energy sources.

In recent years, many GCC countries have announced their net-zero targets. For instance, the UAE aims to achieve net zero emissions by 2050, while Saudi Arabia aims to achieve net zero emissions by 2060. These targets are ambitious but necessary to address the climate crisis.

The O&G industry faces both social and legal pressure to become more conscious about their operations. Net-zero emission targets have emerged as a key strategy for O&G companies to reduce their impact on the environment and commit to long-term sustainability. Additionally, with banks and investors making more responsible investment decisions, it becomes imperative for the industry to align with net-zero emission targets.

Reducing operational emissions is the first step for O&G companies to begin their net-zero journey. Methane being one of the major emissions from oil and gas operations, stopping all non-emergency flaring and venting is the single most impactful measure to cut methane emissions by nearly 20%.

Along with reducing operational emissions, there are several strategies and technologies that the O&G industry can adopt and invest in respectively to help meet net-zero targets. A few of these technologies are:

1. Hydrogen: Hydrogen is already produced and consumed in large quantities by the oil and gas sector. In net zero transitions, low-emission hydrogen-based fuels will play a significant role. It will take the expertise, machinery, and resources that O&G corporations possess to increase the production of hydrogen and hydrogen-based fuels with minimal emissions. They also have a great deal of experience managing industrial amounts of hydrogen and CO2, all of which need to be properly managed to prevent leaks, just like methane. All these skills and resources provide the industry with an added advantage to pursue this technology.
2. Carbon Capture, Utilisation, and Storage (CCUS): There are numerous similarities between CCUS and the current knowledge and abilities of the O&G sector. The creation of geological CO2 storage resources, the running of above-ground CO2 handling facilities, the monitoring of subsurface gases, and the completion of intricate engineering projects of the kind that are nearly solely undertaken by O&G corporations are all necessary components of the entire CCUS supply chain. Once created, CO2 transport and storage assets can yield substantial profits for their owners, which can help diversify the portfolios of oil and gas companies.
3. EV Charging Stations: By purchasing charger manufacturers, network operators, and service providers in addition to investing in charging stations at their retail stations, several O&G corporations have actively participated in the rollout of EV chargers. For O&G firms, EV charging offers a financial opportunity, particularly for those with established retail networks. Installing EV chargers could promote sustainability initiatives, help diversify revenue sources, maintain the existence of physical stations and convenience stores, and strengthen the brands of participating businesses.

In conclusion, the O&G industry, in the GCC region along with other regions, has a responsibility to transition towards a low-carbon future. The region has already made efforts to reduce emissions; however, bigger strides can only be made by the contribution of industries, especially the high-emitting ones like the O&G industry. The industry must play a significant role in achieving net zero and invest in renewable energy sources, energy efficiency measures, and carbon capture and storage technologies. The transition towards net-zero emissions is challenging, but it is necessary to address the climate crisis and secure a sustainable future for the region and the world.

In today’s rapidly evolving business landscape, Environmental, Social, and Governance (ESG) reporting has become a critical component of corporate strategy. As the importance of ESG grows, so do the challenges of collecting, analysing, and presenting the vast amounts of data required. At Sustainable Square, we recognised these complexities and developed SQUARELY, an innovative ESG reporting platform that leverages the power of Artificial Intelligence (AI) to streamline and enhance the reporting process. 

Why AI in ESG Reporting? 

ESG reporting is inherently complex, involving diverse data sets across multiple categories. Traditional methods often struggle to handle this complexity, leading to inconsistencies, inefficiencies, and missed insights. By integrating AI into SQUARELY, we’re offering a more intelligent, adaptive, and user-friendly solution that addresses these challenges head-on. 

How SQUARELY Uses AI: Two Game-Changing Features

1. AI-Driven Form Generation

One of the biggest hurdles in ESG reporting is creating forms that capture all necessary data without overwhelming users. SQUARELY’s AI-powered form generation feature tackles this challenge ingeniously. 

How it works: 

• Administrators describe their data requirements in plain language. 
• Our AI analyses this description and automatically generates comprehensive, user-friendly forms.
• The system creates logical sections, appropriate field types, and necessary validations. 

Benefits: 

• Saves time and resources in form creation
• Ensures consistency across different reports
• Adapts to specific industry requirements and company needs
• Improves data quality by implementing smart validations 
• Quickly adjusts to evolving regulations and reporting standards 

2. Intelligent Data Visualisation

Once data is collected, presenting it in a clear, insightful manner is crucial. SQUARELY’s AI-driven data visualisation feature transforms raw data into compelling visual stories.

How it works:

• The AI analyses the input data from ESG disclosures.
• It automatically selects the most appropriate chart types for different data sets.
• The system generates ready-to-use, customised charts and graphs.

Benefits:

• Eliminates guesswork in choosing the right visualisation
• Presents data in the most impactful way
• Saves time in report preparation
• Enhances understanding of complex ESG metrics
• Facilitates better decision-making based on clear visual insights

Moreover, SQUARELY’s AI makes these visualisations highly functional. Charts can be easily downloaded or embedded into other platforms, giving users flexibility in how they share and present their data. This functionality is particularly valuable for organisations that need to report to various stakeholders or integrate their ESG data into broader communication strategies.

The SQUARELY Advantage: AI-Enhanced ESG Reporting

By incorporating AI into these key features, SQUARELY offers several advantages:

• Efficiency: Automates time-consuming tasks, allowing teams to focus on strategy and analysis.
• Accuracy: Reduces human error in data collection and presentation.
• Insight: Uncovers patterns and trends that might be missed by traditional methods.
• Adaptability: Easily adjusts to changing reporting requirements and company-specific needs.
• User-Friendliness: Simplifies complex processes, making ESG reporting accessible to all stakeholders.
• Consistency: Ensures standardised reporting across different periods and departments.
• Scalability: Grows with your organisation, handling increasing data complexity over time.

Beyond Form Generation and Data Visualisation

While form generation and data visualisation showcase the power of AI in SQUARELY, they’re just part of a broader integration of AI across the platform. We’re continuously exploring new ways to harness AI’s potential, from predictive analytics to natural language processing for narrative reports.

Looking Ahead: The Future of AI in ESG

At Sustainable Square, we believe that AI will play an increasingly crucial role in shaping the future of ESG reporting. As we continue to develop SQUARELY, we’re committed to staying at the forefront of technological advancements in this field.

By embracing AI, we’re not just making ESG reporting easier – we’re making it smarter. SQUARELY empowers organisations to turn their sustainability data into actionable insights, driving meaningful change and creating value for all stakeholders.

In a world where sustainability is no longer optional, SQUARELY and its AI-powered features are helping organisations stay ahead of the curve, transforming ESG reporting from an obligation into a strategic advantage. As your partner in sustainability, we’re leveraging AI to bring clarity, efficiency, and accuracy to your ESG reporting efforts, ensuring you can navigate the complexities of sustainability with confidence and ease.

 

a. Islamic Finance and its Link to Sustainability

Islamic finance is founded on principles of fairness, ethical investing, and social welfare, which naturally align with the goals of sustainable development. Prohibiting interest (riba) and speculative activities (gharar), Islamic finance promotes risk-sharing, social justice, and investment in tangible assets, making it well-suited for sustainable finance initiatives. The concept of Maqasid al-Shariah (objectives of Islamic law) emphasises safeguarding life, wealth, and dignity, which resonates with environmental and social responsibility.

The increasing intersection between Islamic finance and sustainability has led to innovative financial products, particularly in the Middle East and GCC, where green sukuks and other instruments play a pivotal role in advancing the region’s climate transition strategies.

b. Islamic Sustainable Finance: Facts and Figures

Islamic finance is gaining traction globally, driven by ethical investing trends and sustainable development goals. According to PwC, there is an increasing demand for sustainable sukuks from both issuers and investors, aligning with Islamic finance’s focus on ethical and socially responsible investments. Globally, the Islamic finance industry grew by 9.4% in 2022, reaching almost $3 trillion in assets, with the GCC contributing about 68% of these assets. This growth trend is expected to continue into 2024, driven by the implementation of economic diversification plans such as Saudi Arabia’s Vision 2030.

The global shift towards net zero emissions is gaining traction as businesses of all sizes commit to reducing their carbon footprints. These commitments not only demonstrate environmental responsibility but also enhance corporate reputation and attract sustainability-focused investors.

An increasing number of large corporations and small-to-medium enterprises (SMEs) are committing to net zero Targets. Currently, 8,379 SMEs have joined the SME Climate Pledge, while 3,406 companies are aligned with the Science Based Targets initiative (SBTi) to commit to net zero.

Importance of Net Zero Commitments

Committing to net zero signals a company’s dedication to mitigating climate change, aligning with the Paris Agreement’s goal of limiting global warming to 1.5°C around 2050, as stated by the IPCC. These commitments build trust with stakeholders, customers, and communities by showing leadership in environmental responsibility.

Investor Focus on Net Zero

Investors are increasingly prioritising sustainability. Companies with net zero targets appeal to ESG-focused investors due to their strong governance and forward-thinking risk management. By 2025, ESG assets under management (AUM) are projected to reach $50 trillion, accounting for one-third of the global AUM. Additionally, green bond issuance is expected to range between $128 billion and $211 billion by 2025. Firms with credible net zero strategies are often better placed to access this growing pool of capital.

Global Trends in Net Zero Commitments

Countries with the highest numbers of companies committing to SBTi net zero targets include:

• United Kingdom: 726 companies
• United States: 438 companies
• Germany: 209 companies

Similarly, the top countries with SMEs committing to net zero through the SME Climate Pledge are:

• United Kingdom: 5,344 SMEs
• United States: 542 SMEs
• India: 303 SMEs

Sectoral Leadership in Net Zero

With a total of 51 sectors across 3,480 companies committing to science-based net zero, the professional services sector tops the chart, followed by software services and textile, apparel, luxury and footwear sector.

Net Zero companies in GCC

Within the Gulf Cooperation Council (GCC), at least 20 companies have committed to setting net zero targets in alignment with the SBTi. This illustrates the growing momentum in the region for addressing climate change and driving sustainability. The sectors leading the way include banks with three companies committed, while professional services, real estate, textiles, healthcare, and telecommunications each account for two companies. The remaining seven companies span a variety of industries, such as retailing, water transportation, specialized consumer services, trading, food production, pharmaceuticals, and mining. These diverse commitments underscore the region’s broadening efforts toward integrating net zero targets across critical industries.

Emissions Focus

The majority of companies committing to SBTi net zero targets are focusing on Scope 1 and 2 emissions (direct and energy-related emissions). Notably, 99.6% of companies have committed to addressing only Scope 1 and 2 emissions, while just 0.4% have also accounted for Scope 3 Category 11 emissions, which is from the use of sold products.

Scope 3 emissions—especially from the supply chain—are critical, as they can be 26 times greater than Scope 1 and 2 emissions combined. Addressing these emissions is essential for achieving comprehensive net zero goals. Net zero strategies are becoming critical for corporate sustainability. They align with growing stakeholder expectations—ranging from investors and customers to regulatory bodies—making them a key factor in long-term business success. Companies with credible and ambitious net zero targets are better positioned to attract investment, enhance brand reputation, and secure market leadership in a carbon-constrained future. As companies adopt net zero strategies, the focus is primarily on reducing direct emissions, though addressing indirect emissions from supply chains remains a key challenge.

Sustainable finance, defined as the integration of environmental, social, and governance (ESG) considerations into financial decisions, plays a critical role in addressing global challenges like climate change and social inequality. With ESG-focused investing becoming a significant trend, financial institutions worldwide are steering investments toward projects that contribute to environmental protection, social equity, and long-term governance stability. These include green, social, and sustainability-linked financial instruments.  

Sustainable finance acts as a bridge between financial goals and sustainability outcomes, promoting long-term financial resilience while addressing pressing environmental and social challenges. The International Energy Agency estimates that nearly $4.5 trillion in annual investments will be required by 2030 to meet global climate targets, emphasizing the importance of mobilizing capital for sustainable projects.   

Sustainable Finance in the Middle East and GCC countries  

In the Middle East and GCC (Gulf Cooperation Council) countries, the transition toward sustainable finance is emerging as a key strategy for economic diversification and climate resilience. The sustainable finance sector is emerging as a vital driver of economic diversification, offering a significant opportunity. According to Strategy&, green finance in the GCC alone could unlock up to $2 trillion in cumulative GDP by 2030, creating over 1 million jobs. The primary sectors driving this opportunity include agriculture, construction, power, transport, water, and waste management.  

This investment will not only help reduce the region’s dependency on hydrocarbons but also enhance its economic resilience and encourage foreign direct investment (FDI). Given the abundance of low-cost renewable energy, the GCC is well-positioned to leverage this opportunity.  

GSSSB Bonds, Loans and Sukuks  

Globally, sustainable bond issuance has been on a consistent rise, with sustainable bonds (green, social, and sustainability-linked) surpassing $1 trillion in 2021. Green bonds account for the largest share of this market, with significant contributions from social and sustainability-linked bonds.  

In the Middle East, the volume of sustainable finance issuance reached $19.4 billion by September 2023, compared to $9.1 billion in 2022. Saudi Arabia and the UAE account for over 82% of the sustainable issuance market in the Middle East, and for over 70% of sustainable sukuk issuances globally. The market for sukuks, which are Sharia-compliant financial certificates, continues to expand as regional governments commit to financing their energy transitions. 

 

The principles for these bonds, loans, and sukuks are primarily defined by the International Capital Market Association (ICMA) and the Loan Market Association (LMA), ensuring that the funds raised are allocated transparently and toward eligible sustainability projects. These frameworks offer credibility, helping investors align with both Islamic and sustainable finance principles.  

Governments’ Sustainable Finance Frameworks  

Governments across the GCC have developed comprehensive sustainable finance frameworks to support national and regional climate goals. The UAE, for example, launched its Sustainable Finance Framework in 2021 to guide investments toward green and social projects. Oman also adopted a Sustainable Finance Framework in January 2024, aligned with its long-term sustainability goals, Oman Vision 2040.  

Saudi Arabia introduced its Green Financing Framework in March 2024, aligning it with Vision 2030, demonstrating the country’s commitment to transitioning to a low-carbon economy. These frameworks ensure that financial instruments like green bonds and sukuks are used in compliance with sustainability principles, providing clarity and transparency for investors. The alignment with ICMA and LMA principles guarantees that the proceeds are directed toward eligible green projects, further supporting the region’s shift toward sustainability.  

Conclusion  

The Middle East and GCC countries are steadily advancing toward a future of sustainable finance, driven by government initiatives, corporate leadership, and increasing investor demand for ESG-compliant projects. The rise of GSSSBs and sukuks in the region highlights a clear commitment to integrating sustainability into financial systems. As these markets continue to evolve, they will play a critical role in financing the global transition to a low-carbon, socially inclusive economy.  

By embracing sustainable finance, Middle Eastern nations are not only safeguarding their own economic future but also contributing to global climate goals, setting the stage for a resilient and sustainable future.  

At Sustainable Square, we specialise in helping organisations develop and implement sustainable finance frameworks aligned with ICMA and LMA principles. Whether you’re looking to issue green bonds, sustainability-linked sukuks, or navigate ESG integration in your financial strategy, we provide expert guidance to ensure compliance and long-term sustainability.  

Reach out to us at info@sustainablesquare.com for consultation and support in driving your sustainable finance initiatives forward.  

In the next article of this series, we’ll dive deeper into sukuks and their expanding role within Islamic finance and sustainable finance. We’ll explore how sukuks, with their Sharia-compliant structure, offer a powerful tool for financing green projects while maintaining ethical investing principles. Stay tuned to learn more about how sukuks are helping to shape the future of sustainable finance in the Middle East and beyond!