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Oman's foray into renewable energy space is inspired by a timely recognition of over reliance on fossil fuels as a source for Oman's energy needs1. There has been a marked shift to renewable sources of energy to meet the needs of a growing economy with the responsibility to move to a low carbon economy. 

Oman's Vision 2040 is a key national strategy, which amongst other objectives, seeks to address the challenges posed by climate change and to ensure equitable access to development. A prime focus of Oman's Vision 2040 includes meeting the sustainable development goals with a view to deliver inclusive socio-economic development to its people. 

Vision 2040: Oman's beacon in dealing with challenges of the future

It is critical to take a step back and understand that the Oman Vision 2040 is central to Oman's future socio-economic ambitions. It is reposed to be the guiding force for all development plans that will be implemented in Oman till 2040. Overall, the twin pillars of thoughtfully dealing with climate change and focusing on social security provisions to the people of Oman, would be key determinants of achieving the Vision 2040.

Sustainable Finance Framework: the potential financing latticework of Vision 2040?

Vision 2040 and related development goals are noble in their intent. A robust, practical and dependable financing framework that delivers on the various dynamic counts that Vision 2040 aspires to fulfil was much needed. The Sustainable Finance Framework (the Framework) is the Government of Oman's blueprint to allocate financing provision to environmental and social causes to mitigate the impact of climate change, promote socio-economic development and transition to a low carbon society. The Framework is central to execution of Vision 2040 and its objectives in this very context.

The Ministry of Finance of Oman (MoF Oman) prepared the Framework under which it intends to issue "Green, Social and Sustainability bonds, loans or sukuk" (the Sustainable Financial Instruments) for investments in projects that deliver environmental and/or social benefits. Generally, such Sustainable Financial Instruments may be issued in any currency or for any term. The Framework is intended to be in alignment with the International Capital Market Association (ICMA) Green Bond Principles 2021 (with the June 2022 Appendix I), the ICMA Social Bond Principles 2023, the ICMA Sustainability Bond Guidelines 2021, the Loan Market Association (LMA) Green Loan Principles 2023 and the LMA Social Loan Principles.

We briefly discuss the core components of the Framework: 

  1. Use of Proceeds

    An amount equal to net proceeds of the Sustainable Financial Instrument issued by MoF Oman would be allocated to finance new or re-finance eligible green or social expenditure, in part or in full which qualify under the Framework as eligible expenditure (Eligible Expenditure). Eligible Expenditure is further categorised into Eligible Green Expenditure2 and Eligible Social Expenditure3.

    Certain key features of the Eligible Expenditure include:

    • the expenditure must not have occurred earlier than three years prior to issuance of Sustainable Financial Instrument or two years after such issuance;
    • the expenditure will be made by state agencies, local authorities and government related entities. If that entity participates in capital markets to issue the Sustainable Financial Instrument, the earmarked disbursement under the Framework would not be counted as Eligible Expenditure; and
    • for co-financed projects with other stakeholders, MoF Oman would only include its pro-rated share of financing.

    Some activities are expressly excluded from issuing the Sustainable Financial Instrument, such as fossil fuel related activities, generation of nuclear power, rail infrastructure dedicated for the transportation of fossil fuels etc. (Exclusions).

  2. Project evaluation and selection

    A special working group i.e. Sustainable Finance Working Group (SFWG) along with MoF Oman (and representation from relevant ministries as required for a specific project) will consult with various Government departments and review potentially qualifying projects within the contours of the Framework. Once a project is selected under the Framework, it will be a continuous responsibility of MoF Oman/ the SFWG to monitor that the selected project complies with the standard of Eligible Expenditure and Exclusions set under the Framework throughout the tenor of the outstanding Sustainable Financial Instrument.

  3. Management of proceeds

    The engine of this Framework is the mechanism to manage the net proceeds on issuance of Sustainable Financial Instrument. Proceeds not allocated to fund Eligible Expenditures must not be used to fund Exclusions. This may turn out to be the game changer in the sustainable finance ecosystem in the Middle-East. Unallocated funds of the proceeds of Sustainable Financial Instrument issuance will be maintained with MoF Oman until introduced in action only if such net receipts qualify as an Eligible Expenditure.

    MoF Oman may utilise unused net proceeds by investing the same in permitted avenues under the Framework. Furthermore, during the tenor of Sustainable Financial Instrument, an expenditure that no longer qualifies as an Eligible Expenditure or is prone to ESG controversies, would be replaced with another identified Eligible Expenditure as soon as reasonably practical and in any case within one year.

    As part of the management of proceeds, SFWG would maintain an internal register to monitor and provide relevant report of Sustainable Financial Instrument.

  4. Reporting

    The Framework requires MoF Oman to publish the Sustainable Financial Instrument Annual Report (the Sustainable Report) as long as there is any outstanding Sustainable Financial Instrument under the Framework. The Sustainable Report can be clubbed with other ESG reporting. The Sustainable Report would be published one year from the first issuance of Sustainable Financial Instrument until complete allocation of net proceeds to Eligible Expenditure and in case of any material changes.
    Components of the Sustainable Report:
    • Summary – This section would include a list of all outstanding Sustainable Financial Instruments and summary of key terms such as the transaction date, principal amount of proceeds, maturity date, coupon, ISIN number etc with respect to the Sustainable Financial Instrument.
    • Allocation Reporting – This will detail the amount of proceeds allocated to each Eligible Expenditure, balance of unallocated proceeds and where such balance is invested, applicable stage of Eligible Expenditure alongside relevant dates, disclosure of percentage of allocation of Sustainable Financial Instruments towards new Eligible Expenditure or re-financing existing Eligible Expenditure and other relevant information, if any.
    • Impact Reporting – Depending on availability of information, this section would provide the environmental and social benefit flowing from use of Sustainable Financial Instrument. In case of co-financings, the relevant pro-rata share of impact would need to be reported as prescribed. This section requires disclosure of methodology and assumptions used for calculation of the impact metrics. Lastly, it is commendable that the Framework contemplates and provides for reporting indicator for each impact metric under Eligible Expenditure. For instance, the reporting indicator for metric dealing with clean transportation include amongst others, number of electric vehicle charging stations and length of electrified railway.

Some thoughts to consider

  • The Framework does not provide whether an Eligible Expenditure can be incurred by private bodies participating in development functions, nor does it incentivise the private sector to participate in achieving the objectives contemplated by Vision 2040.
  • In case of co-financed projects, it is not clear whether the Eligible Expenditure accounted by MoF Oman for its share would restrict the other stakeholders from participating in the capital market to explore financing options for such projects. The segregation of functions and obligations would require further clarity.
  • The Framework does not provide any timelines yet on the evaluation and selection aspect by the concerned ministries in consultation with MoF Oman. While the assessment process outlined under the Framework looks robust it would be helpful for the stakeholders involved to be provided with soft indications as to the timeframe within which the review and selection process would be completed.
  • In relation to management of net proceeds earmarked for Eligible Expenditure, the Framework provides for replacement of any such Eligible Expenditure if it is subject to "ESG controversies" – it remains to be seen what constitutes "ESG controversies".

Impact of the Framework

Climate finance has massive funding gaps which need to be plugged. For instance, estimates of International Monetary Fund (IMF) to meet the goals of the Paris Agreement require global investments of USD 3 trillion to USD 6 trillion per year till 2050. Oman has taken the step in the right direction to guide the Middle-East to initiate orderly financial planning to start meeting the emergent climate finance needs. Green bonds account for not more than three percent of global bonds markets. Geographically, most of these bonds are issued in the developed markets and China. In this context, Oman's Framework will contribute to globalise the green finance ecosystem by initiating a change in how such financing options are perceived in the Middle-East. Additionally, the Framework enhances the pool of investors by attracting and adding ESG investors to its fold.

In broader terms, Oman's actions will inspire the oil economies to fund and spend towards the climate needs and will underline a direct flow of funds received from sale of oil being utilised to fund a greener future.

The Framework: A step in the right direction

Moody's assessment4 of the Framework is worth mentioning. It asserts that the Framework demonstrates a significant contribution to sustainability. A lot will depend on the working of the Framework and sound implementation of its tenets. We will have to wait and watch to observe how Sustainable Financial Instrument issuances proceed under the Framework and whether the Government walks the tightrope in ensuring strict monitoring and compliance with the letter and spirit of the Framework. Overall, the Framework is a step in the right direction that would inspire Oman to stick its nose to the grindstone and sustainably achieve its magical Vision 2040.

As a firm well-versed with the Omani financial markets and regulatory framework, our local and international experts are well placed to advise on navigating the Framework and its implications on issuance of Sustainable Financial Instruments. Please get in touch with our Oman team for further information.  


[1] Oman's renewable energy projects

[2] This expenditure head would include outlined expenditures under the Framework dealing with renewable energy, clean transportation, sustainable water and wastewater management, pollution prevention and control, energy efficiency, sustainable management of living natural resources and land use, and climate change adaptation.

[3] This expenditure head would include outlined expenditures under the Framework dealing with affordable basic infrastructure, access to education, access to healthcare, affordable housing, employment generation, food security and socio-economic empowerment.

[4] Moody's Investor Service's 'Government of Oman: Second Party Opinion – Sustainable Financing Framework Assigned SQS2 Sustainability Quality Score' dated 10 January 2024 affirms – "The framework is aligned with the four core components of the International Capital Market Association’s (ICMA) Green Bond Principles (GBP) 2021 (including the June 2022 Appendix 1) and Social Bond Principles 2023, and the Loan Market Association's, the Asia Pacific Loan Market Association's and the Loan Syndications & Trading Association's (LMA/APLMA/LSTA) Green Loan Principles (GLP) 2023 and Social Loan Principles (SLP) 2023."