ESG sukuk in the UAE has been on a growth path and will continue to expand amid funding requirements to meet energy transition goals, according to a new analysis.

Over the past few years, ESG sukuk in the country has increased, making up more than 12% of total outstanding sukuk in the third quarter of the year and accounting for the majority of issuance across all countries, Fitch Ratings said on Tuesday.

On a quarterly basis, outstanding ESG sukuk in the UAE grew by 41% to reach $6.4 billion at the end of the third quarter of 2023. Also in the third quarter, about 80.6% of ESG sukuk issuance across all countries came from the UAE.

Over the medium term, the UAE’s outstanding ESG sukuk could reach 17.5% to 20% of total sukuk issuance, said the ratings agency, citing that there is also a visible push for the financial instrument, as COP28 approaches.

“Sizeable funding is needed to meet the UAE’s energy transition targets, part of which can be met through ESG sukuk, and sovereign ESG sukuk could be an additional boost,” said Bashar Al-Natoor, Global Head of Islamic Finance at Fitch.

The UAE holds 19.2% of the global outstanding ESG sukuk market. Across the Gulf region, the country holds the largest share at 52%, followed by Saudi Arabia (40.6%).

(Writing by Cleofe Maceda; editing by Seban Scaria)