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Oxford Business Group

Oxford Business Group

Oxford Business Group (OBG) is a global publishing, research and consultancy firm, which publishes economic intelligence on the markets of the Middle East, Africa, Asia…

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What Does This Year Hold For Saudi Arabia’s ESG-Focused Islamic Bond?

  • Saudi Arabia has seen some recent, landmark issuances of ESG-related sukuk 
  • Key jurisdictions registered growth of sustainable instruments in 2021 
  • While sukuk growth is tipped to flatline overall in 2022, ESG-linked sukuk will grow

Earlier this month, Saudi Arabia’s Riyad Bank closed a $750m “sustainability” sukuk (Islamic bond), the latest in a wave of high-profile issuances across different regions. Such ESG-related sukuk are set to see rapid growth in 2022, even while the broader sukuk market softens.

Part of its ESG programme, Riyad Bank’s sustainability sukuk was an Additional Tier 1 sukuk, the first of its kind globally. It was 4.3 times oversubscribed, with demand peaking at $3.2bn.

The launch followed on the heels of Saudi National Bank’s own $750m debut sustainability sukuk in January, the proceeds from which will go towards projects that meet the criteria of the bank’s Sustainable Finance Framework, among them renewable energy facilities.

One of last year’s major developments on this front was the Jeddah-based Islamic Development Bank’s issuance of a $2.5bn sustainability sukuk in March.

Other core sukuk markets have also seen significant sustainability or green sukuk activity recently.

For example, Turkish bank Kuveyt Türk Katilim Bankasi – which is majority-owned by Kuwait Finance House – launched $350m of sustainability sukuk in September last year; the issuance was 12 times oversubscribed, with an order book of $4bn.

South-east Asia pushing ahead

South-east Asia has also been a hotbed of activity.

It was Indonesia that issued the world’s first sovereign green sukuk in 2018, and the country has sustained a leading role in the segment ever since.

In June 2020 the government issued a $2.5bn green sukuk – its third venture into the sustainable debt market – and followed this in June 2021 with a fourth, which raised $3bn.

In terms of corporate rather than sovereign green sukuk, neighbouring Malaysia has been a pioneer.

Renewable energy group Tadau Energy issued the first ever green sukuk in 2017, raising $59m to finance a solar power plant in the country. Since then, Malaysia has been the world’s most diversified market for the instrument, although not its largest.

In April last year Malaysia also launched the world’s first US dollar sustainability sukuk issued by a sovereign, which raised $800m and was 6.4 times oversubscribed.

These and other issuances meant that global ESG-related sukuk saw significant growth in 2021, with volumes expanding 17.2% year-on-year to $15bn, according to Fitch Ratings.

Prospects for growth in ESG-linked sukuk

In terms of the broader sukuk market, last year was also a robust one, with Fitch calculating that the key jurisdictions – namely the GCC, Malaysia, Indonesia, Turkey and Pakistan – issued $230.2bn between them.

Nevertheless, S&P Global Ratings recently forecast that in 2022 global sukuk issuance will likely flatline relative to 2021.

S&P attribute this to three main factors: lower and more expensive global and regional liquidity; the complexity of issuing sukuk; and reduced financing needs in core markets, such as the GCC. This last factor can in turn be principally attributed to higher oil prices.

Despite this, many analysts contend that the market for ESG-focused sukuk will continue to grow.

At the risk of oversimplification, green sukuk bears the same relationship to green bonds as traditional sukuk does to traditional bonds.


In this sense, more than the sukuk space generally, it is the overall health of the green bond market that is indicative of how the green sukuk market will fare going forward.

The outlook is promising. The green bond market reached $517.4bn in 2021, according to Climate Bonds Market Intelligence. Nearly double last year’s total of $270bn, this is the highest figure since market inception and marks the 10th record year in a row.

As the year progresses, investors’ ballooning demand for ESG-compliant finance is also expected to drive green and sustainability sukuk. 

By Oxford Business Group

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