Saudi Arabia launches the Middle East's first green bonds in euros

Saudi Arabia has taken a key step towards consolidating its economic diversification agenda by issuing its first green bond in euros, a milestone for the Middle East region. This move is part of a growing series of debt issuances by the Saudi government with the aim of financing its ambitious economic transformation plan backed by the Vision 2030 initiative. The proceeds generated by these green bonds will be used to finance projects within the Kingdom's green fiscal framework, thus boosting its transition to a more sustainable economy. 

The seven-year green bond, issued in euros, has generated considerable interest among investors, who submitted orders totalling more than 6.5 billion euros (approximately 6.83 billion dollars), reflecting the strong financial interest in the Kingdom's transformation projects. According to Al-Arab, the bond's yield premium was around 125 basis points above the average swap market rate, highlighting confidence in the Kingdom's creditworthiness and economic prospects, as well as the growing importance of emerging markets, especially those in the Gulf. 

This new sustainable financing framework, based on the principles of green bonds, marks a decisive stage in Saudi Arabia's strategy to accelerate its economic transition. The Saudi government aims to reduce its greenhouse gas emissions by 278 million tonnes per year by 2030, a key objective in its efforts to mitigate climate change and diversify its economy beyond oil. In this context, the Kingdom's sovereign wealth fund has begun issuing green bonds from 2022, as part of its strategy to promote key green projects, such as renewable energy, clean transport and sustainable water management. 

The country's green fiscal framework, which directs the funds raised through these bonds, covers the financing of eight types of eligible projects, including the promotion of renewable energy and clean transport. These initiatives are key to achieving Riyadh's climate and energy goals, which include a significant transformation of its energy matrix, with the aim of solar and wind power accounting for 50% of the electricity grid's capacity by 2030. 

The impact of the green bond issue goes beyond environmental sustainability, as it is also part of efforts to diversify the Saudi economy, which has historically been dependent on oil revenues. In this context, the sovereign wealth fund, which manages assets of approximately 925 billion dollars, has been a key player in financing the country's renewable energy infrastructure, developing 70% of the renewable energy programme and planning to invest more than 10 billion dollars in green projects until 2026. 

The issuing of these bonds also reflects a wider trend in the Gulf region, where countries are intensifying their efforts to develop sustainable financial markets. According to the Financial Analysis Unit of the Saudi newspaper Al-Eqtisadiah, the major Gulf economies account for 35% of total green sustainability bond issues in the Arab region, worth 41.6 billion dollars, underlining the commitment of the Gulf countries to the transition to more sustainable economies. 

However, despite the progress made in sustainability and green financing, Saudi Arabia faces immediate economic challenges. The government has indicated that it will begin by turning to the debt markets in 2025 to cover a budget deficit estimated at 27 billion dollars, while continuing to finance key projects related to its Vision 2030, which aims to transform the economy, diversify sources of income and reduce dependence on oil.

This panorama of growth and transformation in Saudi Arabia is part of an ambitious strategy to consolidate its position as a leader in the green economy in the near future, with a strong focus on investment in alternative energies such as solar, wind and hydrogen. The issuance of green bonds is just one of the many initiatives that the Saudi government is promoting to meet its sustainability goals and promote a transition to a future less dependent on oil. 

The issuance of the Kingdom's first euro-denominated green bonds not only marks a milestone for the region, but also demonstrates the country's determination to finance its economic and environmental transformation. With a clear focus on sustainable development, Saudi Arabia is taking firm steps towards building a diversified and resilient economy that, despite the economic challenges, seeks to remain at the forefront of the fight against climate change.