ESG sukuk market forecast to exceed $50bn

A report from credit ratings agency Fitch Ratings has predicted that the ESG sukuk market will be worth more than US$50 billion within the next two years.

Key reasons for the forecast are the funding diversification goals and ESG mandates facing issuers as well as new regulatory frameworks and government initiatives around sustainability.

Fitch does also list a number of risks such as geopolitical volatilities, new sharia requirements that could impact sukuk credit risk, surging oil prices that could reduce funding needs in core markets and the weakening of sustainability initiatives in core markets.

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The global ESG sukuk market rose by 60.3% year-on-year at the end of Q1 2024, reaching $40 billion outstanding.

The report comes on the back of a number of key regulatory initiatives in the sukuk market. For example, in April, the UAE’s Securities and Commodities Authority extended the waiver of registration fees for green or sustainability-linked sukuk and bonds. Meanwhile Saudi Arabia and Oman have both introduced green financing frameworks,

According to Bashar Al Natoor, global head of Islamic finance at Fitch Ratings, these initiatives could support standardisation, ecosystem development and aid transparency. “There is significant ESG sukuk growth potential, and continuous efforts and increasing confidence will be key to unlocking this.”

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