GCC takes the lead in ESG sukuk issuance, Saudi Arabia becomes largest market

Environmental, social and governance (ESG) sukuk issuance, including green and sustainability-related sukuk, was dominated by financial institutions primarily based in the GCC in the first quarter of 2022, although most issuance came from the financial sectors. energy and utilities.

Historical ESG Sukuk Emissions 2018–Q1 2022

Issuance reached $2.4 billion in the first quarter of 2022, slightly lower than the $2.5 billion issued during the same period in 2021, according to global data provider Refinitiv. The $900 million debut issuance from Bahrain-based Infracorp, the infrastructure investment arm of Gulf Finance House (GFH), was the largest ESG sukuk issued during the quarter.

Two other early issues, also from financial institutions, were from Saudi Arabia; the Saudi National Bank and Riyadh Bank issued sustainability-related sukuk worth $750 million each.

The sukuk issued by Riyadh Bank was the first sustainability-related Supplemental Level 1 (AT 1) sukuk in the world. The issuance proceeds are expected to provide Shariah-compliant financing and refinancing for select sustainable projects, in line with the Bank’s Sustainable Financing Framework. Saudi Arabia is the only jurisdiction of the Organization of Islamic Cooperation (OIC) and one of the few on the Asian continent, along with the ESG AT1 sukuk.

GCC Sovereigns Tapping the ESG Debt Market for a Broader Investor Base

ESG investment opportunities are emerging rapidly in GCC markets. Governments looking to invest heavily in the renewable energy sector and companies are integrating ESG principles into their operations and financing, which is expected to reshape the financial landscape in the region.

Issuers in the region have also come under pressure from foreign investors, mainly European and American, to respond to the demand for investments classified as “green” or “linked to sustainable development”, which could eventually become a point of access to tap into international capital. markets.

ESG sukuk issued by GCC-based entities, which began in 2018, reached a total value of $10.6 billion, or 59% of cumulative global issuance through the first quarter of 2022. Saudi Arabia is now become the largest market for ESG sukuk, by total value. of $7.9 billion.

ESG Sukuk issuance by country 2017–Q1 2022

GCC governments will debut in ESG debt markets this year, with sovereign green issues from Qatar and Saudi Arabia scheduled for 2022.

In March, Qatar’s finance ministry announced the government’s plan to issue international green bonds, after holding talks with lead arrangers in January. “We don’t expect a big size, it’s going to be very small,” Qatari Finance Minister Ali Al-Kuwari said. “I think what is more important than that is that we need to build a vision and a strategy for climate change in the financial sector,” he added.

The Saudi government and Saudi sovereign wealth fund, the Public Investment Fund (PIF), are also preparing to issue their first green bonds this year, with the aim of diversifying and broadening their investor bases in addition to financing the Kingdom’s transition to a greener economy. economy.

Some of the region’s regulators have also worked to integrate ESG bonds and sukuk into their capital markets regulations. The Qatar Financial Center (QFC) has launched the first sustainable GCC sukuk and bond framework to further develop the local debt market.

“The objective of this framework is to encourage further development of the local debt capital market by diversifying options for borrowers and investors and laying a solid foundation for building trust between these stakeholders,” said said QFC Authority CEO Yousuf Mohamed Al-Jaida.

The framework is based on the Green Bond Principles (GBP), Social Bond Principles (SBP) and Sustainable Bond Guidelines (SBG) of the International Capital Markets Association (ICMA). It focuses on promoting appropriate disclosure, the flow of relevant information, reporting and transparency to ensure ESG objectives are met and greenwashing risks are minimized.

Meanwhile, the Oman Capital Market Authority (CMA) is developing its bond and sukuk regulations, which will also cover sustainable and responsible (SRI) investments, including but not limited to social (waqf), sustainable, green and, for the first time, blue investments. sukuk.

For more information and analysis on sukuk market size and trends, please visit the Refinitiv Workspace/Eikon app, Sukuk now.

(Reporting by Jinan AlTaitoon edited by Seban Scaria)

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