MAYS IBRAHIM (ABU DHABI) 

The UAE remains a key market for environmental, social and governance (ESG) sukuk, although global issuance dropped sharply in the first nine months of 2026 amid geopolitical uncertainty and subdued activity, according to Fitch Ratings.

In its Global ESG Sukuk Market Monitor: 3Q26, released on Tuesday, Fitch said the UAE was among the emerging markets expected to sustain ESG sukuk activity, alongside Malaysia, Saudi Arabia, and Indonesia. 

Global ESG sukuk issuance across currencies fell 46% year on year to $7.1 billion in the first nine months of 2026, reflecting broader market volatility and uncertainty over interest rates.

Despite the slowdown, outstanding ESG sukuk rose 13% year on year to approximately $62 billion at the end of September. 

The instruments accounted for about 20% of outstanding US dollar ESG debt in emerging markets, excluding China.

UAE companies were the only issuers in ESG Islamic syndicated financing during the third quarter, according to the report.

Fitch said investor demand for sustainable investments and issuers' efforts to diversify funding sources would continue to support the market. 

However, geopolitical risks, rate uncertainty and investor appetite for emerging-market debt remain potential constraints.

Credit quality across the sector remained strong. About 95% of Fitch-rated ESG sukuk were investment grade at the end of the third quarter, while around 75% of issuers had Stable Outlooks. Some 21% had Negative Outlooks and about 4% were on Rating Watch Negative.

Fitch-rated US dollar ESG sukuk totalled approximately $26 billion, representing about 11% of all Fitch-rated dollar sukuk.

Social sukuk was the only ESG category to record issuance growth during the first nine months, rising 67% year on year, mainly driven by Saudi Arabia. In contrast, global green sukuk issuance fell 84%, while sustainability sukuk declined

35%.Malaysia continued to strengthen its sustainable Islamic finance framework through incentives announced in its 2027 budget, including tax deductions for eligible sukuk issuance costs and exemptions for certain grants from 2027.

Fitch said ESG sukuk would remain a meaningful part of emerging-market financing, supported by sustainability targets and funding diversification. Future growth, however, will depend on market conditions and investors' willingness to maintain exposure to emerging-market debt.