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Fitch: Saudi Arabia’s Green Financing Framework Facilitates Sustainable Funding

Saudi Arabia’s Green Financing Framework enhances trust among investors (SPA)
Saudi Arabia’s Green Financing Framework enhances trust among investors (SPA)
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Fitch: Saudi Arabia’s Green Financing Framework Facilitates Sustainable Funding

Saudi Arabia’s Green Financing Framework enhances trust among investors (SPA)
Saudi Arabia’s Green Financing Framework enhances trust among investors (SPA)

Bashar Al Natoor, global head of Islamic finance at Fitch, praised Saudi Arabia’s launch of its “Green Financing Framework” as a key move to support sustainable funding efforts and boost investor trust.

The Saudi Ministry of Finance introduced the Green Financing Framework on Thursday, outlining eight types of projects eligible for funding through green bonds.

These projects include support for clean transportation, renewable energy, and initiatives to help the kingdom adapt to climate change.

Under the framework, the government can sell green bonds for projects that meet set standards. These bonds will be issued by the Ministry of Finance, with oversight from two committees. They’ll handle sales and funding allocation for the projects.

According to Al Natoor, Saudi Arabia’s Green Financing Framework release is a big step towards smoother sustainable funding efforts, boosting trust among investors and stakeholders in environmental safety.

This move follows other efforts by Saudi Arabia to improve transparency and governance in the environmental sector, like setting up bodies such as the National Compliance Center for Environmental Affairs and the National Waste Management Center.

Al Natoor stressed that these steps are vital for enhancing the credibility of the Green Financing Framework.

He further explained that using sukuk to fund green projects adds depth to sustainable financing, appealing to Sharia-compliant investors while supporting environmental goals."

Following Islamic finance principles alongside green initiatives offers an attractive option for diverse investors, stressed Al Natoor.

Sukuk and Islamic finance are expected to play a crucial role in funding, as the Kingdom needs significant investments from both public and private sectors to fulfill climate commitments, he explained.

In 2023, sustainable governance-related sukuk notably grew, reaching $36.1 billion globally by year-end, revealed Al Natoor.

Fitch expects the market share of ESG-compliant sukuk to rise to over 7.5% from the current 4.3% by the end of 2023.

This growth could be driven by issuers diversifying funding to meet the needs of global investors focused on ESG, along with government sustainability efforts.

The Public Investment Fund (PIF) issued $5 billion in green bonds early last year, with strong demand indicating interest in such investments from Saudi Arabia.

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Saudi Arabia Sees Highest Level of Non-oil Private Sector Activity in 4 Months

The 1.5-point increase in the PMI reflects a larger expansion in both output and new orders. (Asharq Al-Awsat)
The 1.5-point increase in the PMI reflects a larger expansion in both output and new orders. (Asharq Al-Awsat)
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Saudi Arabia Sees Highest Level of Non-oil Private Sector Activity in 4 Months

The 1.5-point increase in the PMI reflects a larger expansion in both output and new orders. (Asharq Al-Awsat)
The 1.5-point increase in the PMI reflects a larger expansion in both output and new orders. (Asharq Al-Awsat)

Business activity in Saudi Arabia's non-oil sector accelerated to a four-month high in September, driven by strong demand, which led to faster growth in new orders. The Riyad Bank Saudi Arabia Purchasing Managers' Index (PMI), adjusted for seasonal factors, rose to 56.3 points from 54.8 in August, marking the highest reading since May and further distancing itself from the 50.0 level that indicates growth.

The 1.5-point increase in the PMI reflects a larger expansion in both output and new orders, alongside challenges in supply. The improvement in business conditions contributed to a significant rise in employment opportunities, although difficulties in finding skilled workers led to a shortage in production capacity.

At the same time, concerns over increasing competition caused a decline in future output expectations. According to the PMI statement, inventories of production inputs remained in good condition, which encouraged some companies to reduce their purchasing efforts.

Growth was strong overall and widespread across all non-oil sectors under study. Dr. Naif Al-Ghaith, Senior Economist at Riyad Bank, said that the rise in Saudi Arabia's PMI points to a notable acceleration in the growth of the non-oil private sector, primarily driven by increased production and new orders, reflecting the sector’s expansionary activity.

Al-Ghaith added that companies responded to the rise in domestic demand, which plays a crucial role in reducing the Kingdom's reliance on oil revenues. The upward trend also indicates improved business confidence, pointing to a healthy environment for increased investment, job creation, and overall economic stability.

He emphasized that this growth in the non-oil sector is particularly important given the current context of reduced oil production and falling global oil prices. With oil revenues under pressure, the strong performance of the non-oil private sector acts as a buffer, helping mitigate the potential impact on the country's economic conditions.

Al-Ghaith continued, noting that diversifying income sources is essential to maintaining growth amid the volatility of oil markets. He explained that increased production levels not only enhance the competitiveness of Saudi companies but also encourage developments aimed at expanding the private sector's participation in the economy.

This shift, he said, provides a more stable foundation for long-term growth, making the economy less susceptible to oil price fluctuations.