The global environmental, social and governance (ESG) sukuk market is set to surpass US$50 billion ($67.74 billion) outstanding in 2025, and remain one of the key dollar funding tools among the Islamic finance markets in Saudi Arabia, the UAE, Indonesia and Malaysia, says Fitch Ratings.
In 2024, global ESG sukuk — or “Shariah-compliant” bonds — expanded 23% y-o-y to US$45.2 billion outstanding, outpacing global ESG bonds, which were up 16%. ESG sukuk also outpaced global sukuk growth, which came in at 10%.
ESG sukuk issuance in 2024 reached US$11.1 billion (up 3.8% y-o-y), mostly driven by Saudi Arabia (39%), Malaysia (22%), UAE (20%) and Indonesia (8%). Among Gulf Cooperation Council (GCC) countries, the ESG debt capital market (in US dollars) reached US$46.3 billion outstanding, with 44% from sukuk.
The largest listing venue for ESG sukuk globally is Nasdaq Dubai, with 35% share of global outstanding volumes at end-2024.
See also: Sustainable sukuk poised for further growth
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 GCC countries, says Fitch Ratings in a Jan 21 note.
“A recent example is the Indonesian sovereign sukuk (BBB). The 30-year green sukuk tranche attracted 90% [of its] investors from Europe, the US and Asia (excluding Malaysia and Indonesia), with more than 85% coming from non-bank investors,” say Bashar Al Natoor, global head of Islamic finance; and senior analyst Amjad Alkabra of Fitch Ratings.
For now, ESG sukuk remains concentrated in GCC countries, Malaysia and Indonesia. Most Organisation of Islamic Cooperation (OIC) countries — including in Africa and Asia — have not issued ESG sukuk or bonds despite varying funding needs, “perhaps due to ESG goals taking lower priority”, say the analysts.
“The financial sector and debt capital market in general also remains underdeveloped in many OIC countries, with gaps in the necessary regulations, infrastructure and incentives. This might change in the long term,” add Fitch Ratings analysts.
ESG sukuk is likely to cross 15% of global dollar sukuk issuance in the medium term. As at end-2024, this figure was 12.3%.
Sukuk is also a notable ESG funding tool in emerging markets, says Fitch Ratings, with around a 20% share of emerging market ESG dollar debt issued in 2024 (excluding China), with the rest bonds.
Growth drivers include funding diversification goals, enabling regulations, sustainability initiatives and net-zero targets pursued by sovereigns, banks, corporates and government-related entities.
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“The ESG sukuk market has a robust credit profile, with nearly all Fitch-rated ESG sukuk being investment grade,” says Al Natoor. “Sukuk is now a key ESG funding tool in emerging markets, with growth expected amid sustainability initiatives, funding needs and a favourable funding environment. However, issuances remain concentrated in a handful of countries.”
Still, the funding environment is generally favourable, with the US Federal Reserve expected to cut rates by 100 basis points (bps) to 3.5% by 4Q2025, says Fitch Ratings.
Charts: Fitch Ratings, Bloomberg
