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.