Arab News, Thu, May 09, 2024 | Dhu al-Qadah 1, 1445
Global ESG sukuk market projected to surpass $50bn thanks to funding diversification
Saudi Arabia:
The global sukuk market linked to environmental, social, and governance
principles is expected to exceed $50 billion in the next two years driven by
funding diversification goals.
According to Fitch Ratings, other factors
catalyzing the growth of these Shariah-compliant debt products include new ESG
mandates, regulatory frameworks, and government-led sustainability initiatives.
The report highlights that the global ESG sukuk
rose by 60.3 percent year-on-year to reach $40 billion outstanding at the end of
the first quarter of 2024.
Bashar Al-Natoor, global head of Islamic Finance
at Fitch Ratings, said: “Almost 99 percent of all Fitch-rated ESG sukuk are
investment-grade. The year started with key regulatory initiatives, which could
support standardization, ecosystem development, and aid transparency.”
He added: “There is significant ESG sukuk growth
potential, and continuous efforts and increasing confidence will be key to
unlocking this.”
The instrument, also known as green sukuk, is a
Shariah-compliant financial tool wherein issuers utilize the proceeds solely to
finance investments in renewable energy or other environmental assets.
The credit rating agency added that sukuk has a
significant share of ESG debt in core markets.
“In the GCC (Gulf Cooperation Council) countries,
ESG sukuk reached $15.9 billion outstanding, representing 45 percent of the ESG
debt mix, with the balance in bonds,” said Fitch in the report.
However, it added that the market could face
challenges from factors like geopolitical tensions, high oil prices, and new
Shariah requirements, which might alter sukuk credit risks.
In April, another report from Fitch Ratings
indicated that the issuance of this debt product would continue to grow in the
remaining months of the year, albeit at a slower pace compared to the first
quarter.
The report highlighted that countries in the GCC
accounted for 35 percent of the global outstanding sukuk.
Fitch also revealed that the GCC debt capital
market has reached $940 billion in outstanding sukuk and is steadily approaching
the $1 trillion mark.
In February, it projected that ESG sukuk would
exceed 7.5 percent of the global outstanding Islamic bonds in the coming years.