With regulators and industry associations churning out new ESG initiatives, analysts are confident that by 2026, outstanding ESG Sukuk would be worth US$50 billion.
ESG Sukuk have been on a steady upward trajectory – outstanding value at the end of Q1 2024 grew by 60.3% year-on-year (y-o-y) to US$40 billion, according to Fitch Ratings. It is however still a small market, accounting for only 12% of global outstanding hard currencies Sukuk as the end of March. Notably, however, the Islamic instrument plays a significant part in the GCC’s debt strategy – 45% of the region’s ESG debt mix is Shariah compliant.
The ratings agency project that over the next two years, outstanding ESG Sukuk will rise 25% to US$50 billion “as issuers aim to meet their funding diversification goals and ESG mandates, alongside new regulatory frameworks and government-led sustainability initiatives”.
We have seen several green and sustainable-related initiatives by key Islamic finance markets this year that also bode well for Islamic ESG offerings. The UAE’s Securities and Commodities Authority extended the waiver of registration fees for green or sustainability-linked Sukuk and bonds last month, shortly after Saudi Arabia and Oman unveiled their respective green financing frameworks – both of which include Shariah compliant strategies. More recently, the IsDB Group, the International Capital Market Association and the London Stock Exchange released new guidance on ESG Sukuk.
“There is significant ESG Sukuk growth potential, and continuous efforts and increasing confidence will be key to unlocking this,” commented Bashar Al Natoor, the global head of Islamic finance at Fitch Ratings.
In the first three months of the year, several sustainable issuances made it to market including the green Sukuk by Dubai Islamic Bank and Al Rajhi Bank, both for US$1 billion each. The Indonesian sovereign has also tapped the green Sukuk market while the UAE’s Aldar Properties and Egypt’s Golden Coast are planning to issue imminently.