Global ESG sukuk is likely to surpass $60bn outstanding by end-2026, reflecting its expanding role in funding sustainability initiatives, attracting a diverse investor base, and ongoing regulatory reforms, says Fitch Ratings.
In a report titled “Global ESG Sukuk Market Monitor: 1H25”, Fitch says that just over 40% of all emerging-market ESG US dollar debt issued in 1H2025 (excluding China) was in sukuk format, with the rest in bonds.
However, Fitch expects ESG sukuk issuance to moderate in 3Q2025 due to seasonal summer trends in key markets, mirroring broader sukuk market patterns, before rebounding in 4Q2025.
Fitch-rated ESG sukuk have been resilient in the face of the Middle East geopolitical conflict, says Mr Bashar Al Natoor, global head of Islamic Finance at the global credit rating agency. “All issuers have ‘Stable’ outlooks, and almost all are investment-grade. There were no defaults. ESG sukuk are now increasingly tapped by both Islamic and ESG-focused investors, supporting funding diversification, and helping issuers meet their sustainability targets”.
Over 10% of global dollar sukuk outstanding are ESG-linked. Global ESG sukuk increased by just over 12% year-on-year in 1H2025 to about $50bn equivalent outstanding. The GCC accounted for over half of this, led by Saudi Arabia and the UAE, while Malaysia and Indonesia together represented 40%.
However, geopolitical risks, evolving Shariah requirements, oil price volatility, and greenwashing concerns could slow ESG sukuk issuance, says Fitch.
Sukuk issuance trends show resilience
S&P Global Ratings (S&P) has said that it continues to expect $70bn-$80bn in foreign currency-denominated sukuk issuance over 2025. In contrast, local currency issuance will likely continue its downward trend in the second half of 2025.
In a report, S&P says that it does not expect geopolitical risks to significantly affect the volume of issuance.
“It will rather depend on the trajectory of monetary policy, local liquidity conditions, and investments in core Islamic finance countries,” said Mr Mohamed Damak, global head of Islamic finance.
Separately, Fitch Ratings says, in a report titled “ Global Sukuk Monitor 1H25”, that global sukuk issuance is likely to slow in 3Q2025 with seasonal summer trends in key issuing markets, following a strong 1H2025 where global volumes surpassed the $1tn milestone for the first time.
The sukuk market’s credit profile “remained broadly robust, despite a period of geopolitical conflict in the Middle East, as 80% of Fitch-rated sukuk are investment grade and 87% of issuers have a ‘Stable’ outlook. On the issuance side, after a brief pause, sukuk rebounded swiftly as tensions eased”, says Mr Al Natoor. Issuance is likely to pick up again in 4Q2025, “on rising Islamic investor demand, funding diversification, refinancing, budget needs and government support for Islamic finance growth”.
Fitch adds that lower oil prices (2025F: $70/bbl; 2026F: $65/bbl) may encourage GCC sukuk and bond issuance. The anticipated single US Federal Reserve rate cut in 4Q2025 could boost issuance. However, risks remain such as new Shariah requirements, geopolitical escalations and oil-price shocks.
GCC Islamic and conventional banks remain crucial as both issuers and investors, with ample liquidity. A few UAE banks started offering fractional sukuk, enabling greater retail participation. M