Sustainability-linked Sukuk issuances will likely continue to increase in the next year from a low base, an S&P Global Ratings report finds. The projected sustainability Sukuk trend notably diverges from the general trend of a continued decline in Sukuk issuances in 2023.
“The increasing focus on sustainability-related themes by core Islamic finance players will create new opportunities for the industry. We expect the contribution of sustainability-linked Sukuk to continue increasing in the next 12–24 months, albeit from a low base,” the report reads.
While sustainability-linked Sukuk issuances have been limited so far, the rating agency expects this to change in the near term, spurred by the growing emphasis on the sustainability agenda in core Islamic finance countries.
In addition to meeting international demand for sustainable investing, the national transition strategies in core Islamic markets contribute to the growth potential for sustainable Sukuk issuances.
“We expect more capital to come to the region given the transformative strategies that are being implemented by some governments and that will create opportunities in the sustainability space,” Dr Mohamed Damak, the global head of Islamic finance at S&P Global Ratings, told ISFI when commenting on sustainable funding in the GCC.
Further contributing to the growth of sustainable Sukuk issuances, the rating agency expects banks to tap into their growth potential through their sustainability agenda. As such, Islamic sustainable financing is also expected to increase in the next year.
This year has seen a number of sizeable sustainable Sukuk issuances from core Islamic finance markets including the US$1 billion Al Rajhi debut dollar Sukuk, the US$1.5 billion GreenSaif facility, the US$2 billion IsDB Sukuk and Dubai Islamic Bank’s sophomore US$1 billion sustainable Sukuk, to name a few.
While sustainable Sukuk issuances will gain steady momentum this year, S&P expects the general Sukuk space to continue its downward trajectory recorded in 2022. While still on the decline, although less sharp than experienced last year, new issuances are still expected to exceed maturing facilities.