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Dollar-denominated ESG sukuk issuance plunged 75% YoY to around $1 billion in Q1 as geopolitical tensions weighed on investor sentiment, Fitch ratings said. A Saudi bank issuance was the only deal completed during the quarter.
Global ESG sukuk issuance fell 63% YoY in Q1 2026 to just $1.6 billion, marking the lowest level since late 2021.
Saudi Arabia dominated overall ESG sukuk activity in Q1, accounting for 61% of issuance. But after January, the market effectively shifted to Malaysia, where all February and March deals were issued in local currency.
GCC debt spreads have climbed to five-year highs as global investors reposition their portfolios, while liquidity has weakened and trading conditions have become less supportive, Fitch Ratings said.
A portion of issuers now carry negative outlooks, and some UAE corporates have been placed on rating watch.
Despite the slowdown, there could be a longer-term upside. Fitch says oil price volatility linked to the war may push GCC economies to accelerate energy diversification efforts, which could support future ESG sukuk issuance.
By the end of Q1, total ESG sukuk outstanding stood at $58 billion, slightly down QoQ but still up 17.6% compared to a year earlier. The market remains concentrated in Malaysia, Saudi Arabia, the UAE, and Indonesia.
At the same time, ESG bond issuance in core Islamic finance markets moved in the opposite direction, rising 76% YoY to nearly $3 billion, with almost all of it coming in January.
(Writing by Ahmad Mousa; editing by Seban Scaria)
