Fitch Ratings: Global ESG Sukuk To Cross US$50 Bln In 2025

KUALA LUMPUR, Jan 22 (Bernama) -- The global environmental, social and governance (ESG) sukuk market is set to surpass US$50 billion (US$1=RM4.46) outstanding in 2025, according to Fitch Ratings.

The ESG sukuk market will remain one of the key dollar funding tools in the Islamic finance markets in Saudi Arabia, the UAE, Malaysia, and Indonesia, it said.

The sukuk is also a notable ESG funding tool in emerging markets, with around a 20 per cent share of emerging-market ESG dollar debt issued in 2024 (excluding China) and the rest bonds, said Fitch in its non-rating action commentary.   

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“Growth drivers include funding diversification goals, enabling regulations, sustainability initiatives and net-zero targets pursued by sovereigns, banks, corporates, and government-related entities.

“ESG sukuk is also likely to cross 15 per cent of global dollar sukuk issuance in the medium term (2024: 12.3 per cent),” it said.

Fitch Ratings global head of Islamic finance Bashar Al Natoor said the ESG sukuk market has a robust credit profile, with nearly all Fitch-rated ESG sukuk being investment grade.

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“Sukuk is now a key ESG funding tool in emerging markets, with growth expected amidst sustainability initiatives, funding needs, and a favourable funding environment.

“However, issuances remain concentrated in a handful of countries,” he said.

The rating agency said that in 2024, global ESG sukuk expanded 23 per cent year-on-year to US$45.2 billion outstanding, outpacing global ESG bonds, which were up 16 per cent. 

“ESG sukuk also outpaced global sukuk growth (10 per cent), while green and sustainable sukuk could help issuers opportunistically tap demand from ESG-sensitive international investors from the United States (US), Europe and Asia, as well as sukuk-focused Islamic investors from the Gulf Cooperation Council (GCC).

“ESG debt capital market (US dollars) reached US$46.3 billion outstanding in GCC countries, with 44 per cent in sukuk,” it said.

Fitch said the Nasdaq Dubai is the largest primary listing venue for ESG sukuk, holding 35 per cent of the global outstanding volumes at end-2024. 

“Risks facing ESG sukuk market growth include shariah-compliance complexities, such as (those) linked to ‘AAOIFI Shariah Standard No 62’, weakening sustainability drives, geopolitical risks, and oil volatilities,” it added.

-- BERNAMA