ESG Sukuk set to hit $70bn by end 2026

January 15, 2026 (MLN):The global ESG sukuk market is on track to surpass $70 billion by the end of 2026, driven by strong demand in emerging markets (EMs).

ESG sukuk accounted for roughly 40% of EM ESG debt issuance in US dollars in 2025, up from 18% in 2024, highlighting the rapid adoption of sustainable finance instruments across the region, according to a new report by Fitch Ratings.

Saudi Arabia, Malaysia, UAE, and Indonesia lead issuance as ESG sukuk continue to attract global investors.

Alignment with ICMA principles and increased dollar-denominated issuance are expected to broaden participation from institutional investors. Despite growth, the market remains fragmented, with issuance largely concentrated in the four key markets.

“ESG sukuk momentum is expected to continue in 2026, supported by sustainability mandates, net-zero targets, new frameworks, robust investor demand, and the upcoming COP31 in Turkiye,” said Bashar Al Natoor, Fitch’s Global Head of Islamic Finance.

He noted that geopolitical tensions, evolving Sharia and ESG requirements, and greenwashing risks remain key challenges, but the market’s credit profile is strong: 92% of rated ESG sukuk are investment grade, all with Stable Outlooks, and there have been no defaults to date.

Global ESG sukuk issuance surged over 60% to $18.5bn in 2025, with Saudi Arabia contributing 33%, Malaysia 28%, the UAE 19%, and Indonesia 9%.

Total outstanding ESG sukuk reached $58bn by the end of 2025, of which 66% were dollar-denominated, marking a 30% increase from 2024.

The majority of ESG sukuk are labeled ‘sustainability’ or ‘green’, while social, sustainability-linked, orange, and climate sukuk are emerging in the market.

Notable developments include Pakistan issuing its first sovereign green sukuk and Oman Electricity Transmission Company SAOC launching Oman’s first ESG sukuk with a BB+ rating.

Policy support is strengthening market growth. Malaysia introduced tax exemptions for Sustainable and Responsible Investment sukuk, Saudi Arabia’s Capital Market Authority rolled out ESG debt guidelines.

Qatar’s central bank launched a Sustainable Finance Framework, and the UAE central bank is developing a Sustainable Islamic M-Bills programme.

With strong issuance momentum, increasing regulatory support, and growing investor appetite, the ESG sukuk market is poised for significant growth across emerging economies, making sustainable Islamic finance a key pillar of the global debt market.

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