The Environmental, Social and Governance (ESG) Sukuk will cross $50 billion mark globally within the next two years, as issuers aim to meet their funding diversification goals and ESG mandates, alongside new regulatory frameworks, Fitch Ratings has said.
However, according to the credit rating agency, 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 per cent 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,” remarked Bashar Al Natoor, the 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,” he noted.
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. According to Fitch Ratings, the global ESG sukuk rose by 60.3 per cent y-o-y to reach $40 billion outstanding at the end of Q1 2024 (all currencies).
ESG sukuk made up 12 per cent of global outstanding sukuk (hard currencies). Fitch rated about 90 per cent of Kenyan President seeks $25bn replenishment of African Development Fund the global hard-currency ESG sukuk, or $24.7 billion outstanding, at endQ1 2024 (up 56% yoy). Of this, Saudi Arabia had the highest share (45%) followed by the UAE (33%). The agency pointed out that the sukuk has significant share of ESG debt in core markets.
