Gulf nations now account for over half of global environmental, social, and governance sukuk issuances in the first half of 2025, underscoring their growing leadership in sustainable Islamic finance.

Sukuk linked to ESG objectives saw a 12 per cent rise to approximately $50 billion outstanding globally in H1 2025, with Gulf Cooperation Council countries contributing the majority of this volume. Saudi Arabia and the UAE emerged as principal issuers, driving much of the growth. Issuances denominated in foreign currencies rose to $41.4 billion, an 8.94 per cent year-on-year increase, as institutional demand from both regional and international investors firmed further.

Saudi Arabia alone accounted for nearly 39 per cent of the total foreign currency sukuk volume in H1, signaling its strategic commitment to funding Vision 2030 priorities through sustainable Islamic financing. The scale and number of ESG sukuk issued by Gulf issuers-including sovereigns, banks, and corporates-mark them as dominant players in the global market.

Fitch Ratings expects the global ESG sukuk market to reach $60 billion in outstanding volume by end‐2026. GCC countries-led by Saudi Arabia and the UAE-continue to serve as hubs of innovation and scale in this segment. Emerging issuers include Malaysia, Indonesia, and Pakistan, though they collectively accounted for under half of the total in H1.

Strong demand for ESG sukuk is supported by rising interest in sustainable finance instruments that align with national decarbonisation strategies and renewable energy commitments. Instruments such as green and sustainability‐linked sukuk are gaining traction, offering issuers access to lower-cost capital and ESG-sensitive international pools. Moody's had noted earlier that GCC economies accounted for over 80 per cent of global sustainable sukuk issuance in H1 2024, with Saudi Arabia and the UAE at the forefront.

Even as sustainable debt issuance globally slowed in other formats, ESG sukuk have outperformed conventional sukuk growth, highlighting the appeal of Shariah‐compliant, transparency‐oriented instruments. Analysts expect sustained momentum through the year, with issuance activity partly driven by issuers seeking to lock in favourable foreign currency funding amid monetary policy uncertainties.

Attention to regulatory developments is intensifying. The forthcoming implementation of Shariah Standard 62 by the Accounting and Auditing Organization for Islamic Financial Institutions is poised to require legal transfer of underlying assets to investors-transforming sukuk structures toward equity‐like formats. Rating agencies warn this could deter fixed‐income investors, increase structuring complexity and raise costs, particularly in Saudi Arabia and the UAE, potentially fragmenting the market unless flexibility and jurisdictional adaptation are built into the standard.

Financial institutions across the GCC are responding by accelerating ESG sukuk programmes and adopting sustainable finance frameworks. Dubai's Nasdaq serves as the leading listing venue globally, hosting some 35 per cent of outstanding ESG sukuk by end‐2024. Banking groups such as FAB and ADIB have originated ESG‐aligned Islamic financings-for example supporting renewable energy and decarbonisation projects in line with national and international sustainability targets.

Issuers in the Gulf appear determined to exceed expectations through H2 2025, capitalising on robust investor appetite, sovereign sustainability drives, and regulatory frameworks conducive to ESG-aligned debt. Market watchers anticipate further acceleration in sustainable Islamic finance, positioned at the intersection of capital efficiency, Shariah compliance, and global ESG investment flows.

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