How GCC climate pledges turn into transition risk in a loan book, what each Gulf NDC gives a risk team, and how to use it alongside NGFS scenarios.
Introduction
Transition risk is the risk that the move to a low-carbon economy changes what borrowers earn, what they spend and what their assets are worth. In the GCC that move is set first by national policy, and every GCC government has stated its policy in one formal document: the nationally determined contribution, or NDC, filed with the UNFCCC under the Paris Agreement.
Most bank climate work in the region starts from global scenarios. This article starts from the other end: what each GCC NDC actually tells a risk team, where national emissions sit, and how to combine the two. For the targets themselves, see our side-by-side guide to GCC NDCs compared.
How an NDC reaches a loan book
The path runs in five steps.
- National target. The NDC sets the level of ambition: an emissions ceiling, a quantity of reductions or a set of sector goals.
- Sector measures. The NDC names where the cuts come from: power and water, industry, oil and gas, transport, buildings, waste.
- Policy instruments. Governments deliver those measures through regulation, efficiency standards, procurement, carbon registers and, in time, carbon pricing.
- Borrower economics. Instruments change costs (compliance, capital expenditure, energy prices), revenues (demand for high-carbon products) and asset lives.
- Credit and market risk. Those changes show up in probability of default, collateral values and concentrations.
A risk team that reads the NDC sees steps one and two in the government’s own words. Steps three to five are what scenario analysis has to model.
What each GCC NDC gives a risk team
| What the NDC provides | National anchor | Sector detail | What has to be modelled | |
|---|---|---|---|---|
| UAE | -47% by 2035 vs 2019; 103.5 MtCO2e ceiling | Strong: absolute, economy-wide, printed level | Pathway for each consuming sector to 2035 | Instruments and timing per sector |
| Oman | -7% unconditional, -33% with support, by 2035 vs 2024 | Strong for the unconditional part; conditional part depends on finance | Sector levers; hydrogen 1 Mt a year by 2030 | Which conditional measures happen |
| Saudi Arabia | Reduce, avoid and remove 335 MtCO2e a year by 2040 | Weak: dynamic baseline, no emissions level | Renewables (57.5 GW tendered), CCS (Jubail 9 Mt a year by 2028) | National path, built from measures |
| Qatar | 42 MtCO2e of reductions by 2040 | Weak: no reference level | Five sectors; 4 GW renewables by 2030; near-zero methane | National path, built from measures |
| Bahrain | 20% renewable capacity, 3.6m trees, 1.6m mangroves by 2035 | None: no GHG target | Renewables share | Almost everything |
| Kuwait | -7.4% vs 2035 business as usual (2021 NDC) | Weak and dated: 2021, no update | Limited | National path; expect a new NDC |
Two NDCs give a bank a national ceiling it can use directly. The UAE’s goes further, publishing 2035 levels for each consuming sector: buildings fall 79%, industry 27% and transport 20% from 2019, with power and water emissions allocated to the sectors that use the electricity. For the other four, the policy path has to be assembled from the measures listed, and the uncertainty is wider.
Where the emissions are, the risk is
The national greenhouse gas inventories in the first Biennial Transparency Reports show where policy will have to bite.
- Power, water and energy industries. Energy industries are 47.8% of national emissions in the UAE and 46.5% in Saudi Arabia, where public electricity and heat alone is 42.9%. In Qatar, gas processing and other energy industries are 45.3% of the total. Utilities, independent power and water producers, and the contractors and suppliers around them, are first in line.
- Industrial processes. In Oman, industrial processes are a third of national emissions (33.2%), the highest share in the region. Aluminium, cement, steel, ammonia and petrochemicals carry both domestic policy risk and export risk.
- Transport. 15% to 19% of national emissions in the UAE, Saudi Arabia and Oman. Fleet operators, logistics and auto finance are exposed to efficiency standards and electrification.
- Cooling. Fluorinated gases, mostly refrigerants, rose 219% in the UAE between 2019 and 2022 with cooling demand. Real estate and facilities management carry the efficiency and refrigerant risk.
- Waste. Waste is the largest source of methane in four of the five states with a BTR. Landfill and wastewater operators face methane rules first.
Totals are still rising in most of the region. Between the first and latest inventory years, emissions grew in Saudi Arabia, Qatar, Bahrain and Oman, and fell slightly in the UAE (-0.8% from 2019 to 2022). Rising emissions against falling targets mean the policy adjustment is still ahead, not behind.
Using the NDC alongside NGFS scenarios
Most banks build climate scenarios on the NGFS framework, and rightly: it gives consistent carbon prices, energy mixes and macroeconomic paths. The long-term NGFS set (Phase V, 2024) includes an NDCs scenario, in which countries meet their pledges, ending at about 2.3 °C.
That scenario represents pledges as they stood when it was built. The 2025 round changed four of the six GCC NDCs: the UAE moved to an absolute 2035 target, Saudi Arabia from 2030 to 2040, Qatar from a business-as-usual percentage to tonnes, and Oman from business as usual to a 2024 base year. A defensible GCC scenario therefore does three things:
- Checks the NGFS country assumptions against the current NDC for each market in the portfolio.
- Uses the NDC’s sector pathways to allocate national effort to sectors, where the NDC provides them (UAE, Oman).
- Builds explicit assumptions where it does not (Saudi Arabia, Qatar, Bahrain, Kuwait), and documents them.
IFRS S2 asks for climate-related scenario analysis commensurate with the entity’s circumstances, to assess its climate resilience. Our comparison of GCC central bank climate rules sets out what each regulator requires.
The external layer: CBAM and supply chain rules
GCC transition risk is not only domestic. Saudi Arabia’s second NDC and Oman’s NDC 3.0 both name the EU Carbon Border Adjustment Mechanism and the Corporate Sustainability Due Diligence Directive as measures that may affect implementation. For a bank lending to aluminium, steel, fertiliser or hydrogen exporters, the buyer’s border is a second source of carbon cost, and it already applies: CBAM’s definitive period began on 1 January 2026.
Five steps for a GCC risk team
- Read the NDC of every market in the book. Note the target type, base year, target year and conditional share.
- Map exposures to the NDC’s sectors. Use the inventory shares above to weight attention: power and water, industry, transport, real estate, waste.
- Build a national path for each market. Use the NDC’s own pathway where it exists; build one from sector measures where it does not.
- Reconcile with NGFS. Align carbon price and energy mix assumptions with the national path, and document every adjustment.
- Measure the starting point. Financed emissions show how much of the national effort sits in the portfolio, and feed the bank’s own transition plan.
Sources: the current NDCs and first Biennial Transparency Reports of the six GCC states, as filed with the UNFCCC and held at 31 October 2026; NGFS Climate Scenarios, Phase V (2024).
Frequently asked questions
Why should a bank read its country's NDC?
Because transition risk is the risk that climate policy changes the costs, revenues and asset values of borrowers, and the NDC is the government's formal statement of that policy to 2035 or 2040. It names the sectors expected to cut emissions, the measures planned and, in some cases, the national emissions ceiling. IFRS S2 asks companies, banks included, to use climate scenario analysis; the NDC is the national anchor for that analysis.
Which GCC NDCs give a usable national emissions path?
The UAE and Oman. The UAE's third NDC sets 103.5 MtCO2e in 2035, against 196.3 MtCO2e in 2019, with a pathway for each consuming sector. Oman's NDC 3.0 sets 7% below 2024 unconditionally and 33% with support. Saudi Arabia and Qatar target tonnes of reductions without a stated emissions level, Bahrain has no greenhouse gas target, and Kuwait's NDC dates from 2021.
Can a bank use NGFS scenarios instead of the NDC?
It should use both. The NGFS scenarios give a consistent global framework with carbon prices, energy mixes and macroeconomic paths. The NGFS NDCs scenario represents pledges as they stood when the scenario set was built, which for the long-term set was 2024, before the 2025 round of GCC NDCs. Checking the scenario's assumptions for each country against the current national filing, and adjusting where they differ, makes the analysis defensible.
Which GCC sectors carry the most transition risk?
By national emissions: power, water and other energy industries in every GCC state, close to half of national emissions in the UAE and Saudi Arabia; industrial processes in Oman, a third of national emissions; transport, 15% to 19% in the UAE, Saudi Arabia and Oman; and export industries exposed to the EU Carbon Border Adjustment Mechanism, such as aluminium, steel, fertilisers and hydrogen.
Do the GCC NDCs mention CBAM?
Yes. Saudi Arabia's second NDC and Oman's NDC 3.0 both name the EU Carbon Border Adjustment Mechanism and the Corporate Sustainability Due Diligence Directive as measures that may affect implementation. For banks lending to exporters, that is external transition risk on top of domestic policy.