Green Sukuk Surge Turns Gulf Debt Markets Into Climate-Finance Engine

Gulf debt markets are set for a climate‑finance makeover as green and ESG‑linked sukuk issuance accelerates across Saudi Arabia, the UAE, Bahrain and Oman, turning Sharia‑compliant bonds into a primary funding tool for clean energy and low‑carbon infrastructure. Regulators and rating agencies say the trend will deepen in 2026 as governments lean more on capital markets to finance transition projects and plug fiscal gaps without over‑relying on conventional borrowing.

Fitch Ratings estimates that outstanding sukuk across the GCC reached about 1.1 trillion dollars by Q3 2025, up 12.7 percent year‑on‑year, with Saudi Arabia and the UAE driving issuance. A growing share of that stock carries green, social or sustainability labels, reflecting rising investor demand for instruments that combine credit quality with measurable environmental and social outcomes. Officials in Bahrain say regional issuance of environmental and ESG sukuk has already surpassed 8 billion dollars, with strong momentum into 2026.

In the UAE, the Securities and Commodities Authority has introduced dedicated regulations for green and sustainability‑linked bonds and sukuk, and crucially waived registration fees for such products to encourage listings. By the end of 2023, the country had issued around 14 billion dollars of green bonds and sukuk, a figure that has continued to grow as utilities, real‑estate firms and state vehicles tap markets for solar, wind, waste‑to‑energy and green‑building projects. Saudi Arabia’s Capital Market Authority has likewise built a sustainability unit to align disclosure rules with global frameworks and support labelled issuance.

A separate industry assessment projects that global ESG sukuk outstanding could exceed 70 billion dollars by end‑2026, led by emerging markets in the Gulf and Asia. Oman Electricity Transmission’s debut green sukuk and Pakistan’s first sovereign green sukuk are highlighted as milestones, signalling that smaller markets can also access investors seeking Sharia‑compliant climate paper. GCC sovereigns and government‑related entities remain the anchor issuers, but corporates in utilities, energy, transport and real estate are expected to account for a growing slice.

The macro backdrop is supportive. A PwC review of five GCC economic themes for 2026 notes that countries are likely to increase borrowing—“including sukuk and sustainability‑linked bonds”—to finance deficits and fund strategic investments in diversification and transition. Fitch forecasts that the GCC debt capital market could rise to around 1.25 trillion dollars of outstanding instruments in 2026, with about 84 percent of Fitch‑rated sukuk investment‑grade and 90 percent of issuers on stable outlooks. That gives global investors comfort that labelled sukuk can sit alongside conventional EM credit in core portfolios.

Insurance and asset‑management players are key buyers. Regional takaful operators and pension funds are under pressure to green their portfolios while maintaining income, making long‑dated, high‑quality green sukuk an attractive match for liabilities. International ESG funds, meanwhile, see GCC names as a way to gain exposure to high‑impact climate projects—grid upgrades, desalination, sustainable tourism and hydrogen pilots—often at yields that compare favourably with developed‑market green bonds.

Critics caution that the pipeline of genuinely green projects must keep pace with financing enthusiasm. Without robust taxonomies, external reviews and post‑issuance reporting, the risk of “green‑washing” could undermine credibility and pricing advantages. Gulf regulators are therefore working to harmonise definitions with global standards such as ICMA’s Green Bond Principles, while also tailoring criteria to regional realities like water scarcity and adaptation needs.

For underwriters in Dubai, Abu Dhabi, Riyadh and Manama, the boom represents a lucrative fee pool as they structure increasingly complex deals—sustainability‑linked sukuk with step‑up coupons, transition frameworks for hard‑to‑abate sectors, and hybrid instruments that blend green and social use‑of‑proceeds. Conferences like “Bonds, Loans & Sukuk Middle East 2026” are dedicating entire tracks to ESG structures, signalling that sustainable finance has moved from niche to mainstream in the regional capital‑markets conversation.

If current trajectories hold, 2026 could mark the year when GCC sukuk markets become a central conduit for global climate capital, linking Islamic finance with renewable energy, resilient infrastructure and green tourism projects across the Gulf and neighbouring regions. The challenge will be to sustain integrity and innovation as volumes rise—ensuring that every labelled rial and dirham raised translates into tangible climate and social outcomes on the ground.