Today's Edition
SARA ALZAABI (ABU DHABI)
COP28 and UAE's Net Zero 2050 goals have spurred momentum for ESG (environmental, social and governance) sukuk, said Venty Mulani, Data Specialist - Sustainable Fixed Income at Bloomberg LP.
According to Bloomberg's Capital Market League Tables, volumes of ESG-related sukuk surged by 48% to reach $6.2 billion in H1 2024. Meanwhile, Islamic loans witnessed a 21% decrease, standing at $13.35 billion. Leading the ESG Sukuk market, Saudi Arabia issued $3.98 billion, with the UAE at $2.25 billion.
"The 48% increase in ESG Sukuk volumes in H1 2024, particularly in the MENA region, was driven by COP28 momentum and sustainable financing commitments from key banking sector players. The UAE's Net Zero by 2050 goals have created a favourable environment for green finance, encouraging engagement in ESG sukuk," Mulani told Aletihad.
With initiatives like Dubai Financial Services Authority (DFSA) fee waivers, increased investor demand for sustainable debt, and enhanced market liquidity and reputation as a financial hub, the UAE government is advocating ESG sukuk.
According to Mulani, the decline in the Islamic loan market is driven by the global economic uncertainty and rising interest rates, which have dampened borrowing and lending. Sukuks are perceived as more stable and Shariah-compliant, mirroring a shift towards predictable and ethical finance options. ESG sukuk has drawn more investor interest than conventional Sukuk, with Saudi Arabia and the UAE leading by aligning with global sustainability goals and Shariah principles, enclosing net-zero carbon commitments and renewable energy projects.
"In the MENA region, the bulk of ESG sukuk issuances in 2024 have been led by Saudi Arabia, with financial institutions like Al Rajhi Bank and Saudi National Bank (SNB) having sustainable sukuk issuances contributing to a combined 43% market share. The UAE follows closely, accounting for 32% of the market share, driven by sustainable sukuk issuances from institutions like Emirates Islamic Bank, Dubai Islamic Bank, and Aldar Properties (Green Sukuk)," Mulani added.
The debut $750 million sustainable sukuk issuance by Emirates Islamic Bank is seen as a major milestone for the UAE.
Mulani drew attention to the sovereign issuances from Saudi Arabia, Malaysia, and the UAE, which played a central role in shaping the market during H1 2024. "In H1 2024, the UAE played a significant role in the global Islamic finance space. The UAE Federal Government issued Dh3.9 billion in sukuk format, and the Emirate of Sharjah raised Dh7 billion with the issuance of a Sukuk Al Ijara. These issuances highlight the UAE's active participation in the Islamic finance sector," she said.
She noted that global sovereign Islamic issuances totalled $44.8 billion in H1 2024, with Saudi Arabia raising $30.1 billion and Malaysia $6.4 billion, positioning them in the top tier of issuers, alongside the UAE.
Mulani also discussed the challenges and opportunities in the Islamic loan market.
"The Islamic loan market offers significant opportunities, particularly with the growing number of issuers in the MENA region, which is expanding the investor base. However, the high cost of issuance remains a key challenge, as the complexity and associated expenses of structuring Shariah-compliant loans can be a barrier for issuers."
She further explained that Bloomberg's Capital Markets League Tables and core analytics enhance transparency in Islamic finance as they offer a clear view of market trends, issuer activities, and market share, helping people tackle challenges and find new opportunities.
Sustainable debt issuances enhance portfolio diversification in the MENA region "by reducing risk through long-term investments in sustainable projects. These instruments attract a broader investor base, including international investors, who are increasingly prioritising sustainability in their investment decisions," Mulani added.
