RIYADH: The global issuance of environmental, social, and governance sukuk is expected to surpass $50 billion outstanding in 2025, driven by Islamic finance markets in countries including Saudi Arabia, according to an analysis.
In its latest report, Fitch Ratings said the global value of Shariah-compliant bonds focused on ESG expanded by 23 percent year on year to $45.2 billion outstanding in 2024. This growth outpaced global ESG bonds, which saw a 16 percent increase. The analysis added that countries such as the UAE, Indonesia, and Malaysia would play a key role in driving the growth of ESG sukuk.
These bonds are investments in renewable energy and other environmental assets and are considered key debt instruments as the world moves toward a greener future.
“The ESG sukuk market has a robust credit profile, with nearly all Fitch-rated ESG sukuk being investment grade,” said Bashar Al Natoor, global head of Islamic Finance at Fitch Ratings.
He added: “Sukuk is now a key ESG funding tool in emerging markets, with growth expected amidst sustainability initiatives, funding needs, and a favorable funding environment. However, issuances remain concentrated in a handful of countries.”
ESG sukuk expansion also outpaced global sukuk growth, which witnessed a 10 percent increase in 2024.
The US-based credit rating agency added that green and sustainable sukuk could help issuers opportunistically tap demand from ESG-sensitive international investors from the US, Europe, and Asia, as well as sukuk-focused Islamic investors from the Gulf Cooperation Council region.
Several factors, including funding diversification goals, enabling regulations, sustainability initiatives, and net-zero targets pursued by sovereigns, banks, and corporations, as well as government-related entities, could boost the issuance of this debt product in 2025.
The analysis revealed that ESG sukuk is also likely to cross 15 percent of global dollar sukuk issuance in the medium term.
The report also highlighted the impact of the adoption of Accounting and Auditing Organization for Islamic Financial Institutions’ Sharia Standard 62.
“Risks facing ESG sukuk market growth include Shariah-compliance complexities, such as linked to AAOIFI Sharia Standard No. 62, weakening sustainability drives, geopolitical risks, and oil volatilities,” said Fitch Ratings.
This AAOIFI guideline, which was published as an exposure draft in late 2023, aims to standardize various aspects of the sukuk market, including asset backing, ownership transfer, and trading procedures.
Earlier this month, S&P Global said that global sukuk issuance is projected to hit between $190 billion and $200 billion in 2025, driven by increased activity in key markets such as the Kingdom and Indonesia.
In December, a report by Kamco Invest projected that Saudi Arabia would face the largest share of bond maturities in the GCC region from 2025 to 2029, reaching an estimated $168 billion.
