Environmental, social, and governance (ESG) sukuk in the Gulf Cooperation Council (GCC) countries reached $18.5 billion outstanding, or 43% of global ESG sukuk of $43 billion, by the end of H1 2024, according to rating agency Fitch.

Saudi Arabia accounts for the largest portion (42.7%) of Fitch-rated ESG sukuk, with the UAE coming in second at 33.8%.

According to Fitch, ESG sukuk issuance in Islamic finance core markets – GCC, Malaysia, Indonesia, Turkey and Pakistan - rose 13% year-on-year (YoY) to $6.3 billion in the first half of 2024.

However, ESG bond issuance declined by 34% YoY to $7.8 billion.

Fitch expects slower ESG sukuk issuance in Q3 2024, in line with global sukuk market seasonality, before regaining momentum over Q4 2024-Q1 2025.

The promising medium-term potential for ESG debt issuance is fuelled by governments’ increasing commitment to sustainability and issuers’ aims to meet ESG mandates and funding diversification plans, said Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings.

“However, the ESG debt segment is at a nascent stage compared to developed markets,” he stated.

(Editing by Seban Scaria seban.scaria@lseg.com)