A decade ago, sustainability in the Gulf was typically little more than corporate branding. Companies highlighted solar pilots and philanthropic programs, while investors had limited visibility into governance or climate risks. That has since changed dramatically. In 2025, ESG frameworks are reshaping capital flows across the region. Financing costs, investor appetite and even market access are now tied to credible climate disclosure and sustainability strategies. ESG has become an economic lever rather than merely a reputational exercise.
In February 2025, GCC states collectively pledged $100bn in renewable energy investment to cut emissions by 20% by 2030. The target reflects not only environmental ambition but economic necessity. The World Bank and regional think tanks estimate that unchecked climate change could shave up to 5% off regional GDP by mid-century. For economies dependent on hydrocarbons, the cost of inaction is too high.
The UAE has taken the lead in embedding ESG into market rules. Federal Decree-Law No. 11 of 2024, which came into effect in May 2025, requires public and private companies to monitor, report and reduce greenhouse gas emissions. Penalties are substantial, ensuring compliance is not optional. The law also created a National Carbon Credit Registry, giving the UAE the legal and institutional framework for a carbon market.
Saudi Arabia is building parallel structures. The Capital Market Authority issued comprehensive rules in 2024 for green, social, sustainability and sustainability-linked bonds and sukuk. This reduces investor uncertainty over reporting standards and enables Saudi corporates to tap ESG debt markets at lower risk premiums. Oman’s Muscat Stock Exchange has gone further by mandating ESG disclosure for all listed companies from 2025, covering more than 130 firms. Qatar has transitioned from voluntary guidance to binding requirements and linked its regulatory push to sovereign issuance.
By aligning with the International Sustainability Standards Board (ISSB) and Europe’s Corporate Sustainability Reporting Directive (CSRD), Gulf regulators are positioning their corporates to access European and Asian capital on equal terms. For investors accustomed to fragmented ESG reporting across emerging markets, the Gulf is now offering a clearer and more credible disclosure regime.
The clearest sign that ESG has become a financial lever is in the bond market. In May 2025 Abu Dhabi state renewables firm Masdar issued a $1bn dollar green bond, oversubscribed 6.6 times, bringing its cumulative program to $2.75bn. Proceeds are being used for solar, wind, hydrogen and battery storage projects. This surge in demand stands out, given that globally ESG-labelled debt fell to 12.9% of issuance in 1Q 2025, down from 17% a year earlier.
Banks are setting benchmarks. Emirates NBD priced a $500mn sustainability-linked loan bond at a coupon of 5.141% in late 2024, setting a regional benchmark. First Abu Dhabi Bank followed with the Gulf’s first $50mn ‘blue’ bond, financing marine ecosystem projects. Corporates such as DP World and Acwa Power have also tapped green sukuk and sustainability-linked loans, achieving lower borrowing costs and access to new investor pools (MEES, 1 August).
The emergence of a measurable “greenium,” the lower yield at which green instruments are priced compared to conventional debt, is visible in Gulf markets. While the premium varies, the direction is consistent: strong frameworks mean cheaper capital.
Carbon markets are taking shape as a core element of transition finance. The UAE registry provides the infrastructure for issuing, transferring and retiring credits. Regulators are designing trading platforms in Abu Dhabi Global Market (ADGM) to link domestic supply with international buyers.
Saudi Arabia has advanced fastest. The Regional Voluntary Carbon Market Company (VCM Co.), a joint venture of the Public Investment Fund (PIF) and the Saudi Tadawul Group which operates the country’s bourse, has already conducted three auctions, selling more than 6mn tonnes of credits. In June, VCM signed a landmark agreement with Enowa, Neom’s energy and water subsidiary, to deliver 30mn tonnes of carbon credits by 2030, following completion of the first delivery in December 2024. This shift to long-term procurement signals that Saudi Arabia is moving beyond pilots into sustained, large-scale carbon trading.
DIVERSIFICATION STRATEGY AND SOVEREIGN WEALTH
ESG integration is dovetailing with Gulf diversification strategies. In Abu Dhabi, the $30bn Alterra climate fund, announced at COP28, has begun deploying sovereign wealth capital into low-carbon infrastructure across the MENA region and beyond. Alterra’s scale is unprecedented in the region and illustrates how sovereign wealth funds are embedding climate priorities into their portfolios.
Qatar’s debut $2.5bn green bond in 2024 was split into five and ten year tranches, both priced at record tight spreads and oversubscribed more than three times. Oman has taken a regulatory lead by making ESG disclosure mandatory on its stock exchange, while Saudi Arabia continues to channel PIF capital into hydrogen and renewables.
These moves send a clear signal to international investors: Gulf markets intend to remain investable even as global ESG enthusiasm wanes.
External dynamics are amplifying the urgency. The European Union’s Carbon Border Adjustment Mechanism (CBAM) has expanded to hydrogen, cement and steel, all critical to Gulf export strategies. Asian LNG buyers, including Japan and South Korea, are increasingly demanding carbon-intensity guarantees in long-term contracts. Gulf producers that once competed solely on low cost now face an environment where emissions performance determines market access and pricing.
This shift is already visible. Emirates Steel Arkan has begun certifying production under global standards to protect European market access. Adnoc is exploring carbon capture schemes specifically to help state firms such as Emirates Global Aluminium meet CBAM obligations. Trade policy abroad is accelerating ESG adoption at home.
The Gulf has a structural advantage in aligning ESG with Islamic finance. Green and sustainability-linked sukuk are moving from niche products to mainstream issuance, with Saudi Arabia and the UAE setting global benchmarks. For Asian and Middle Eastern investors, this dual compliance blends Shariah requirements with environmental and social safeguards, positioning the Gulf to lead in defining global standards for Islamic ESG finance.
The social pillar of ESG is becoming more material to investor due diligence. Migrant worker protections, female workforce participation, and corporate governance reforms are now folded into sustainability reporting. Qatar’s labor reforms, the UAE’s new governance codes, and Saudi Arabia’s employment diversification targets are increasingly highlighted in sovereign and corporate roadshows . These reforms do more than burnish reputations – they affect access to capital and supply chains, as global buyers extend ESG scrutiny beyond emissions.
While global ESG issuance has slowed, Gulf markets are outperforming. Sovereign sponsorship, compulsory disclosure, and domestic investor demand are creating a structural tailwind for sustainable finance. Gulf banks and corporates with credible ESG frameworks are already securing cheaper capital. Sovereign wealth funds are anchoring climate funds, while regulators align disclosure with global standards.
For policymakers, ESG has become a tool to embed diversification in financial markets. For investors, the Gulf represents a rare emerging-market bloc where ESG frameworks are credible and sovereign-backed. The region has moved beyond catch-up. In areas such as carbon markets and Islamic ESG finance, it is beginning to set the pace by leveraging ESG not only for capital costs but also for long-term competitiveness in global markets.
*Christopher Gooding is an energy transition analyst at Cornucopia Capital, where he focuses on global decarbonization strategy, investment opportunities in clean infrastructure, emerging climate technologies.
