Global ESG sukuk market hits record $6.5bn in Q3, set for strong 2026, says Fitch

22/10/2025 01:43 AST

The global market for environmental, social and governance sukuk reached a record $6.5 billion in the third quarter, bringing total issuance this year to $13.5 billion, Fitch Ratings said.

The surge has already set a new full-year record for 2025, underscoring the growing investor appetite for sustainable Islamic finance instruments, according to the US-based agency.

ESG sukuk accounted for more than 40 percent of all emerging market US-dollar ESG bond issuance excluding China in the first nine months of 2025, up sharply from 18 percent during the same period last year, the report showed.

This rise comes amid a broader push by governments and financial regulators in the Gulf, Southeast Asia, and other emerging markets to develop sustainable finance frameworks.

The global sukuk market topped $1 trillion in 2024, with ESG sukuk exceeding $50 billion, underscoring sustainability's growing role in Islamic finance, according to a joint report from the London Stock Exchange Group and the Islamic Corporation for the Development of the Private Sector, a member of the Islamic Development Bank.

Bashar Al-Natoor, Fitch's global head of Islamic Finance, said: "We expect ESG sukuk issuance to maintain strong momentum into 2026, fueled by robust demand, regulatory support, and sustainability mandates."

He added: "Risks such as oil price volatility, greenwashing and evolving sharia requirements persist, but fundamentals remain solid."

The market's expansion is also growing more sophisticated, marked by a rise in subordinated ESG sukuk.

These neared $5 billion in issuance by the third quarter of 2025, all from Saudi issuers, raising their share of Fitch-rated dollar ESG sukuk to 5 percent in the third quarter from just 1 percent in the first half.

Outstanding ESG sukuk across all currencies reached over $55 billion at the end of September, making up around 40 percent of all ESG debt in member countries of the Organization of Islamic Cooperation.

Fitch reported that approximately 95 percent of its rated portfolio is investment grade. All issuers carry a Stable Outlook, and no rated ESG sukuk has ever defaulted, underscoring the asset class's resilience.

Geographically, issuance remains concentrated in key Islamic finance hubs. Gulf Cooperation Council countries hold over half of all outstanding ESG sukuk, while Malaysia and Indonesia together contribute more than 40 percent.

Arab News