Global ESG sukuk issuance to stay subdued in 2026

July 22, 2026 (MLN): ESG sukuk issuance is expected to remain below 2025 levels through 2026, as the broader global sukuk market continues to slow amid volatility in the Middle East.

GCC supply is likely to ease further, while Malaysia is set to dominate issuance in the second half of the year, backed by tax incentives, strong investor appetite and the depth of its domestic market, even though most of that supply is denominated in local currency.

Regulators in Turkiye, Indonesia and Pakistan are also working ESG sukuk into their respective green finance agendas, Fitch Ratings said.

Bashar Al Natoor, Global Head of Islamic Finance at Fitch, noted that global ESG sukuk issuance declined in the first half of 2026, the first such half-year drop in four years.

He added that Malaysia's deep domestic market kept supply afloat, with Malaysian issuers making up roughly two-thirds of total global ESG sukuk issuance.

Credit quality held firm, he said, with about 95% of all Fitch-rated ESG sukuk carrying investment-grade status.

Driven by the fallout from the Iran conflict and higher yields, worldwide ESG sukuk issuance across all currencies dropped 32% year-on-year to nearly $5bn in 1H26. Within emerging markets, ESG sukuk continued to account for a sizeable portion of dollar-denominated ESG debt issuance, though its share slid to 14% from 41% a year earlier, excluding China.

Outstanding ESG sukuk globally climbed 24.3% year-on-year to $61bn, with issuance concentrated in Malaysia, Saudi Arabia, the UAE and Indonesia  together making up more than 12% of all outstanding dollar sukuk.

ESG sukuk also retained a dominant position within hard-currency ESG debt stocks in Malaysia (72%), Indonesia (51%) and the GCC (44%), with ESG bonds accounting for the remainder.

Separately, Turkiye which is due to host COP31 rolled out its National Green Finance Strategy and Action Plan for 2026–2029, in which sukuk features as one component. In Indonesia, sustainable sukuk have been prioritized under the regulator's sustainable capital-market roadmap spanning 2026–2030.

Fitch flagged additional headwinds facing the market, including evolving sharia and ESG compliance requirements, along with shifting sentiment and sustainability priorities among international investors.

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