Sustainable Finance Market Sees Remarkable Growth in First Half of 2024
In a stunning development, the global environmental, social, and governance (ESG) sukuk market experienced a whopping 41 percent increase year-on-year, reaching an impressive $43 billion in the first half of 2024, as reported by Fitch.
This surge in growth highlights the escalating interest and commitment of governments and issuers towards sustainable finance.
Outstanding ESG Sukuk Show Significant Expansion Globally
By the end of 2023, outstanding ESG sukuk witnessed a substantial 56.8 percent increase year-on-year, amounting to $36.1 billion worldwide, with a remarkable 66.2 percent denominated in hard currency, particularly in US dollars.
Also known as green sukuk, this Shariah-compliant financial instrument is used by issuers to exclusively fund investments in renewable energy or other environmental assets.
Market Dynamics and Forecasts Point Towards Promising Growth
Despite the robust growth in the first half of the year, Fitch Ratings anticipates a temporary slowdown in ESG sukuk issuance in the third quarter of 2024, aligning with typical seasonality patterns in the global bonds market.
Nevertheless, the market is expected to regain momentum in the fourth quarter of 2024, with Fitch expressing optimism about the medium-term growth potential for ESG debt issuance.
Credit Ratings and Issuance Trends Reflect Strong Credit Quality
In the first half of 2024, a striking 99 percent of all Fitch-rated green sukuk were investment-grade, showcasing robust credit quality in this segment.
During this period, Fitch rated approximately 90 percent of global green sukuk issued in hard currency, totaling $26.1 billion, with a significant concentration from the Middle East and Asia.
Sector-Specific Developments and Recent Issuances Drive Market Growth
Core Islamic finance markets witnessed a 13 percent increase year-on-year in ESG sukuk issuance, reaching $6.3 billion by the end of the first half of 2024.
Notable recent issuances include a $600 million green sukuk by Indonesia, $750 million in financial certificates by Emirates Islamic Bank, and $1 billion of sustainable bonds by Al Rajhi Banking and Investment Corp. in Saudi Arabia.
Regulatory Developments Propel Growth in ESG Sukuk Market
Regulatory frameworks and initiatives are pivotal in supporting the growth of ESG sukuk, with countries like Qatar, Saudi Arabia, Malaysia, UAE, and Oman launching various frameworks and initiatives to foster the development of sustainable finance.