Global ESG Sukuk market to surpass $50 billion in 2025: Fitch Ratings

The global ESG sukuk market is poised to exceed $50 billion in outstanding issuance in 2025, cementing its position as a critical funding tool within Islamic finance markets across Saudi Arabia, the UAE, Indonesia, and Malaysia, according to Fitch Ratings.

The market accounted for approximately 20% of emerging-market ESG dollar debt issued in 2024 (excluding China), with the remainder in bonds.

The market's expansion is fueled by factors such as funding diversification goals, enabling regulations, sustainability initiatives, and sovereigns' and corporates' pursuit of net-zero targets. ESG sukuk is projected to represent over 15% of global dollar sukuk issuance in the medium term, up from 12.3% in 2024.

“The ESG sukuk market has a robust credit profile, with nearly all Fitch-rated ESG sukuk being investment grade,” said Bashar Al Natoor, global head of Islamic finance at Fitch Ratings. “Sukuk is now a key ESG funding tool in emerging markets, with growth expected amidst sustainability initiatives, funding needs, and a favorable funding environment. However, issuances remain concentrated in a handful of countries.”

In 2024, global ESG sukuk issuance grew by 23% year-on-year to $45.2 billion, outpacing the growth of global ESG bonds (16%) and overall global sukuk issuance (10%).

Green and sustainable sukuk are helping issuers attract ESG-sensitive investors from the U.S., Europe, and Asia, as well as Islamic investors from the GCC.

The GCC’s ESG debt capital market reached $46.3 billion in outstanding issuance by the end of 2024, with sukuk accounting for 44% of this total. Nasdaq Dubai emerged as the leading listing venue for ESG sukuk, holding 35% of global outstanding volumes.

Despite its growth, the ESG sukuk market faces challenges, including sharia-compliance complexities under standards such as AAOIFI Sharia Standard No. 62, weakening sustainability drives, geopolitical risks, and oil price volatility.

As demand continues to grow, the ESG sukuk market is positioned to play a vital role in bridging Islamic finance and global sustainability goals, according to Fitch Ratings.