Cyprus Sees Growth in Sustainable Debt Market But Faces Challenges
Cyprus is seeing growth in its sustainable debt market, though it remains heavily reliant on government and banking issuances. According to the Central Bank of Cyprus (CBC), sustainable securities accounted for 11.5% of all debt securities held by Cyprus residents in the first quarter of 2026, while they represented 9.5% of debt securities issued by Cyprus-resident entities. The CBC's analysis, led by Antonis Michis, Head of Monetary Policy Operations, highlighted that green debt securities dominate the market, both in Cyprus and the broader euro area.
The report noted that Cyprus residents held €3.40 billion in sustainable debt securities by the end of March 2026, compared to around €2.00 trillion held by euro-area residents. Despite the smaller overall market size, Cyprus's 11.5% share of sustainable securities placed it slightly above the euro-area average. Michis attributed the growth to the increasing economic and financial consequences of climate change, emphasizing the need for diverse financial instruments to support a sustainable economy.
The analysis also revealed that Cyprus's sustainable debt issuance is concentrated in the government and banking sectors, with a notable €1.00 billion issuance by the Public Debt Management Office in 2023 significantly influencing the market. Green securities made up 30% of Cyprus's sustainable issuance, while sustainability debt securities, which combine environmental and social objectives, accounted for 70%. Michis identified the absence of sustainability-linked and social debt securities as areas for further market development.
Looking ahead, the European Central Bank's (ECB) integration of climate considerations into monetary policy could incentivize Cypriot banks to use more sustainable securities as collateral. The ECB's new climate factor, set to be introduced in the second half of 2026, will adjust the valuation of certain collateral based on climate-related risks, potentially encouraging greater use of sustainable debt in financial operations.