Sunday, July 7, 2024 11:02 AM
Fitch Ratings Forecasts Surge in ESG Sukuk Market
- Global ESG sukuk market set to exceed $50 billion in two years
- Green sukuk gaining popularity for renewable energy projects
- GCC countries leading in ESG sukuk issuance and market growth
Image Credits: arabnewspkThe global ESG sukuk market, driven by Fitch Ratings forecasts, is on track to surpass $50 billion, with GCC countries leading in green sukuk issuance and sustainable investing trends.
The global sukuk market, with a focus on environmental, social, and governance (ESG) principles, is poised to surpass $50 billion within the next two years. This growth is being primarily driven by the increasing demand for Shariah-compliant ESG sukuk as investors seek to diversify their portfolios and adhere to new ESG mandates, regulatory frameworks, and government sustainability initiatives.
According to Fitch Ratings, the global ESG sukuk market has experienced a remarkable surge, with outstanding sukuk reaching $40 billion by the first quarter of 2024. Notably, nearly all Fitch-rated ESG sukuk are considered investment-grade, reflecting the market's stability and attractiveness to investors.
Green sukuk, a type of ESG sukuk used to fund projects in renewable energy and environmental sectors, have gained significant traction, particularly in the Gulf Cooperation Council (GCC) countries. In the GCC, ESG sukuk outstanding has reached $15.9 billion, constituting 45% of the ESG debt mix.
Despite challenges such as geopolitical tensions, high oil prices, and evolving Shariah requirements, the ESG sukuk market is expected to continue its upward trajectory. Fitch Ratings projects a continued increase in ESG sukuk issuance, with GCC countries anticipated to contribute significantly to the global sukuk landscape.
The GCC debt capital market, which includes sukuk, has reached an impressive $940 billion in outstanding sukuk and is on track to surpass the $1 trillion mark. Fitch further predicts that ESG sukuk will represent over 7.5% of the global outstanding Islamic bonds in the foreseeable future.
The growth of the global sukuk market linked to ESG principles underscores the increasing importance of sustainable and socially responsible investing. As ESG considerations continue to shape investment decisions worldwide, the rise of ESG sukuk presents opportunities for both issuers and investors to support environmentally friendly projects while generating financial returns.
