Is the ESG Sukuk Market Set to Transform Global Islamic Finance?
Issuance of ESG Sukuks, or Sharia-compliant bonds, is expected to increase, driven by sustainability initiatives and investor demand.
- Demand for ESG Sukuk bonds is projected to increase steadily through 2025.
- Both public and private sectors in Islamic finance hubs are taking part in this growth.
- ESG Sukuk issuance supports the integration of sustainable and socially responsible finance.
The global market for ESG Sukuk, or Sharia-compliant bonds focused on environmental, social, and governance principles, is experiencing a surge. This growth is largely fueled by governments and corporations within key Islamic finance regions, such as Malaysia and Saudi Arabia, which are turning to ESG Sukuks to align with sustainable finance objectives.
The rise of ESG Sukuk is significant because it represents a convergence of Islamic finance with the principles of responsible and sustainable investing. This not only broadens the appeal of Sukuks to international investors looking for ethical finance options but also strengthens sustainability in predominantly Islamic markets, where green financing is in growing demand.
The Islamic finance market has been expanding, with the issuance of Sukuks reaching $200 billion annually. A subset, ESG Sukuks, addresses the rising demand for sustainable investment products by integrating ESG criteria, which are essential for investors prioritizing long-term societal and environmental impact. Malaysia, Saudi Arabia, and the UAE are leading in Sukuk issuances, providing models for sustainable finance in Islamic economies.
This trend aligns with both government-led sustainability initiatives and corporate strategies in major Islamic finance hubs. A spokesperson from one such financial center explained, “ESG Sukuk offers a pathway for investors to engage in sustainable finance without compromising on Sharia compliance, thereby bridging the two frameworks effectively.”
As we look ahead to 2025, the Sukuk market is positioned to offer increasingly diverse opportunities for investors worldwide. This market expansion is expected to deepen integration between Islamic finance and global sustainability, underscoring the potential for ethical investment to drive meaningful change in regional and global markets.
