Environmental, social, and governance (ESG) debt issuance in the Gulf Cooperation Council (GCC) region is expected to increase starting in the fourth quarter of 2026, with Saudi Arabia and the United Arab Emirates (UAE) playing leading roles, according to a senior official at Fitch Ratings.

In its latest assessment, Fitch projected the GCC would maintain its position as the foremost emerging market contributor to ESG debt. This growth is anticipated to be supported by ongoing sustainability and transition initiatives, efforts to diversify funding, and robust demand from international investors prioritizing sustainability. The outlook comes amid a broader expansion in Gulf debt markets, where GCC bond and sukuk issuance reached $160 billion in the first nine months of 2026, representing a 33 percent rise year on year, according to data from investment firm Kamco Invest.

Bashar Al-Natoor, managing director and global head of Islamic finance at Fitch, emphasized the region’s substantial sukuk market as a critical advantage. He noted that ESG sukuk provide issuers with access to both Islamic liquidity pools and sustainability-focused global investors. He added that Saudi Arabia and the UAE would remain central to market growth, as issuance activities are still predominantly concentrated in these two countries.

Fitch’s recent report revealed that the GCC accounted for approximately 39 percent of emerging-market US dollar ESG issuance, excluding China. Saudi Arabia was the largest individual contributor with 20.9 percent, followed by the UAE at 17.8 percent, with Brazil, India, and Turkiye trailing at 15.9 percent, 12.5 percent, and 11.7 percent, respectively.

At the end of the third quarter, outstanding ESG debt in the GCC surpassed $72.9 billion, marking an 18 percent increase year on year. Sukuk instruments comprised 43 percent of this total, and more than 95 percent of ESG sukuk rated by Fitch in the region were investment grade, with no recorded defaults to date.

Al-Natoor identified sustainability and transition financing needs, funding diversification, and sustained investor demand as key drivers of future growth. He pointed out that Saudi banks have progressively increased their exposure to eligible sustainable projects since 2020, while ESG subordinated debt issuance has supported capital strategies within the banking sector. Regulatory measures and upcoming debt maturities were also cited as factors likely to bolster issuance.

However, the report noted a 44 percent decline in GCC ESG issuance to approximately $8 billion during the first nine months of 2026. This drop was marked by a 66 percent decrease in Saudi issuance, contrasted by a 12 percent rise in the UAE. Al-Natoor attributed the downturn primarily to reduced debt capital market activity linked to geopolitical tensions, specifically the Iran conflict. He underscored geopolitical volatility as a potential risk for the market, cautioning that while growth is expected to continue, it may vary unevenly across different markets and issuer categories.