Factors contributing to this growth include funding diversification goals, new ESG mandates, regulatory frameworks, and government-led sustainability initiatives.

According to Fitch Ratings, the outstanding amount of global ESG sukuk reached $40 billion by the end of Q1 2024, representing a 60.3 percent year-on-year increase.

Bashar Al-Natoor, global head of Islamic Finance at Fitch Ratings, noted that almost all Fitch-rated ESG sukuk are investment-grade and that recent regulatory initiatives could support standardization, ecosystem development, and transparency.

The text discusses the growth potential of Environmental, Social, and Governance (ESG) sukuk, a Shariah-compliant financial instrument used to finance investments in renewable energy and environmental assets.

According to Fitch Ratings, ESG sukuk reached $15.9 billion in outstanding debt in the Gulf Cooperation Council (GCC) countries, accounting for 45% of the ESG debt mix.

However, the market may face challenges due to geopolitical tensions, high oil prices, and new Shariah requirements that could alter sukuk credit risks.

The text emphasizes the importance of continuous efforts and increasing confidence to unlock the growth potential of ESG sukuk.

In April, Fitch Ratings reported that the issuance of sukuk, or Islamic bonds, would continue to grow in 2023 but at a slower pace than the first quarter.

Countries in the Gulf Cooperation Council (GCC) accounted for 35% of the global outstanding sukuk, with the GCC debt capital market reaching $940 billion.

Fitch projected that Environmental, Social, and Governance (ESG) sukuk would make up over 7.5% of the total Islamic bonds in the future.