Dubai: Fitch Ratings expects ESG sukuk will cross USD50 billion outstanding globally within the next two years, as issuers aim to meet their funding diversification goals and ESG mandates, alongside new regulatory frameworks and government-led sustainability initiatives. Risks include geopolitical volatilities, surging oil prices that could reduce funding needs in some core sukuk markets, new sharia requirements that could alter sukuk credit risk, and the weakening of the sustainability drive in core markets.

“Almost 99% of all Fitch-rated ESG sukuk are investment-grade. The year started with key regulatory initiatives, which could support standardisation, ecosystem development, and aid transparency,” said Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings. “There is significant ESG sukuk growth potential, and continuous efforts and increasing confidence will be key to unlocking this.”

In April, the UAE’s Securities and Commodities Authority announced the extension of the waiver of registration fees for green or sustainability-linked sukuk and bonds. Saudi Arabia and Oman have introduced Green Financing Frameworks. The International Capital Market Association, the Islamic Development Bank and London Stock Exchange Group also published new guidance on the issuance of ESG sukuk. These initiatives further support ESG ecosystem development.

Global ESG sukuk rose by 60.3% yoy to reach USD40 billion outstanding at end-1Q24 (all currencies). ESG sukuk made up 12% of global outstanding sukuk at end-1Q24 (hard currencies). Fitch rated about 90% of the global hard-currency ESG sukuk, or USD24.7 billion outstanding, at end-1Q24 (up 56% yoy). Saudi Arabia has the highest share (45%) of Fitch-rated ESG sukuk, followed by the UAE (33%).

Sukuk has significant share of ESG debt in core markets. In the GCC countries, ESG sukuk reached USD15.9 billion outstanding, representing 45% of the ESG debt mix, with the balance in bonds. ESG sukuk and bond issuance remains nascent in most Organisation of Islamic Cooperation (OIC) countries.

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Matt Pearson
Senior Associate, Corporate Communications
Fitch Group, 30 North Colonnade, London, E14 5GN
E: matthew.pearson@thefitchgroup.com