Fitch forecasts $60bn boom in ESG sukuk

July 29, 2025(MLN): Fitch Ratings projected that global ESG sukuk would exceed $60 billion outstanding by the end of 2026, highlighting its growing role in financing sustainability initiatives, attracting a diverse investor base, and benefiting from ongoing regulatory reforms.

In the first half of 2025 (1H25), just over 40% of all emerging-market ESG U.S. dollar debt issued, excluding China was in sukuk format, with the remainder in conventional bonds.

However, ESG sukuk issuance is expected to moderate in the third quarter of 2025 (3Q25) due to seasonal summer trends in key markets, following broader sukuk market patterns, before rebounding in the fourth quarter (4Q25).

“Fitch-rated ESG sukuk have been resilient to the Middle East geopolitical conflict,” said Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings.

He further mentioned that all issuers have Stable Outlooks, and almost all are investment-grade.

There were no defaults. ESG sukuk are now increasingly tapped by both Islamic and ESG-focused investors, supporting funding diversification, and helping issuers meet their sustainability targets, he added.

Global ESG sukuk outstanding rose by just over 12% year-on-year in 1H25 to approximately $50 billion.

Over 10% of global dollar sukuk outstanding are ESG-linked.

The GCC region accounted for more than half of the outstanding amount, led by Saudi Arabia and the UAE, while Malaysia and Indonesia together contributed 40%.

Fitch currently rates about three quarters of the global dollar ESG sukuk market, the majority of which is senior unsecured, with only about 1% subordinated. Major listing venues include stock exchanges in Frankfurt, London, Stuttgart, and Nasdaq Dubai.

Issuer diversity expanded notably in the second quarter of 2025 (2Q25), with UAE-based Omniyat Holdings Ltd issuing its first green sukuk, rated ‘BB-’, and Pakistan launching its inaugural rupee-denominated sovereign green sukuk, which is unrated.

Meanwhile, Saudi Arabia’s Capital Market Authority released new guidelines for green, social, sustainability, and sustainability-linked debt instruments.

Despite this growth, Fitch cautions that geopolitical risks, evolving sharia requirements, oil price volatility, and concerns over greenwashing may pose challenges to the pace of ESG sukuk issuance.

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