Global issuance
of environmental, social, and governance sukuk surged 21 percent year-on-year
in the first half of the year, reaching $6.8 billion, according to an analysis
by Moody’s.
The growth is
attributed to ongoing decarbonization efforts in Islamic countries and guidance
from the International Capital Market Association.
Green sukuk,
which are Shariah-compliant investments in renewable energy and environmental
assets, have gained traction as markets shift toward sustainable financing.
“Sustainable
sukuk issuance is rising from a low base as such we expect issuance in 2024 to
top the $10.6 billion that it logged in 2023 — itself a big jump from $6.3
billion in 2022 — driven by the growing push toward decarbonization, expanding
policy efforts and robust investor demand,” said Abdulla Al-Hammadi, assistant
vice president and analyst at Moody’s Ratings.
Gulf
Cooperation Council economies accounted for 82 percent of sustainable sukuk
issuance in the first half of 2024, with Saudi Arabia and the UAE contributing
42 percent and 33 percent of the total, respectively.
The report
indicates that the growth of these sustainable Islamic bonds will accelerate
amid global efforts to reduce carbon emissions.
“As most
countries with active sukuk markets, such as in the Middle East and Southeast
Asia, have rolled out energy transition plans, with renewable energy targets,
financing through sustainable sukuk will be a key lever for them to meet their
decarbonization goals,” added Moody’s.
While
conventional sustainable bond issuance declined by 8 percent in the same
period, sustainable sukuk are appealing to Islamic and conventional investors
looking to implement sustainable investment strategies.
“A key appeal
is that the instrument (green sukuk) provides transparency in its use of
proceeds. About 74 percent of sustainable sukuk have been issued in non-local
currencies, indicating strong international demand. As such, we expect that
growth in sustainable sukuk will accelerate, garnering a larger share of the
sukuk market,” said Moody’s.
In July, Fitch
Ratings reported that ESG sukuk issuance in key Islamic finance markets — such
as the GCC, Malaysia, Indonesia, Turkiye, and Pakistan — increased by 13
percent year on year, reaching $6.3 billion in the first half of 2024.
Looking ahead,
Moody’s expects the governments of Saudi Arabia and Oman to issue their first
sustainable sukuk, following the introduction of sustainable finance
frameworks.
Additionally,
more private companies are anticipated to enter the market for green Islamic
bonds in the coming months, with established sukuk issuers likely considering
sustainable instruments to attract a broader investor base.