The oil-rich countries of the GCC are starting to go green, creating the space for a viable market for green finance, S&P Global Ratings said in a new report.

The GCC, like the rest of the world, has committed to diversifying its economy away from fossil fuels, it added.

"Led by the United Arab Emirates, the GCC over the past few years has been investing in renewables, particularly solar power, and already hosts an active and growing renewables market," said S&P Global Ratings credit analyst Michael Wilkins, in the report titled "Green Finance Takes Hold In The GCC."

The green bond market in the GCC is still in its infancy, but the region's huge investments into renewables--with nearly 7 GW of additional renewable power generation capacity due to come online by the early 2020s—could spur transactions funded via green finance, Wilkins said.

The first and only green bond in the region was issued only recently by the National Bank of Abu Dhabi (now First Abu Dhabi Bank, after its merger with First Gulf Bank) in March 2017, for a total of $587 million. In green loans, we have only seen Masdar in Abu Dhabi tap the market with a green $75 million revolving credit facility (RCF) in September 2018 to fund its sustainability projects.

There have been no green sukuk yet from issuers in the GCC. Today, climate finance in the region consists of a small number of large projects financed by loans or concessional loans from banks, governments, multilaterals, and climate funds such as the Green Climate Fund, the report said.

GCC governments have been laying the groundwork for a green finance sector. The Dubai government wants to take a lead and become a hub for the green finance in the region while Abu Dhabi has similar aspirations.

“We believe new green issuance has the potential to grow and come from sovereigns, utilities, and potentially real estate companies to support the GCC governments' sustainability initiatives,” S&P said in the report. – TradeArabia News Service