Sustainability push seen driving green sukuk issuance for the rest of 2023: Fitch Ratings
Outstanding ESG sukuk hit US$30.5b in the second quarter.
Fitch Ratings expect ESG-linked sukuk, a Shari'ah-compliant financial instrument, to remain a key issuance theme in the second half of the year and eventually increase its share of the world’s outstanding sukuk to 7.5% in five years’ time.
The projected growth is underpinned by the rising awareness and demand for green sukuk among issuers and investors, coupled with Organisation of Islamic Cooperation (OIC) countries promoting sustainability, according to the credit rating agency in a note dated 8 August.
Following the 22% quarterly surge in the second quarter with US$30.5b outstanding, it forecasted green sukuk to nearly double its share of global outstanding sukuk within five years from its current level of 3.8% in the first half of 2023.
“There is a crossover between Islamic finance and ESG principles due to built-in sharia filters. However, Islamic finance needs to go the extra mile to achieve the targeted ESG impact,” said Bashar Al-Natoor, global head of Islamic finance at Fitch. “This is because unlike bonds, ESG sukuk need to be structured in a sharia-compliant manner as well as in a manner that meets green or sustainability mandates.”
ESG sukuk issuers are mostly in Saudi Arabia, Indonesia, Malaysia and UAE currently.
