GCC takes lead in ESG sukuk issuance

Gcc-based financial institutions took the lead in environmental, social and governance (ESG) sukuk issuance, comprising green and sustainability-linked sukuk in the first quarter of 2022, according to global data provider Refinitiv.

The issuances, most of which came from the energy and utilities sectors, reached $2.4 billion in Q1 2022, slightly lower than the $2.5 billion issued during the same period in 2021. The debut issuance of $900 million from Bahrain-based Infracorp, the infrastructure investment arm of Gulf Finance House, was the largest ESG sukuk issued during the quarter.

Two other debut issuances, also from financial institutions, came from Saudi Arabia; the Saudi National Bank and Riyad Bank issued sustainability-linked sukuk worth $750 million each, Refinitiv said.

The sukuk issued by Riyad Bank was the world’s first sustainability-linked Additional Tier 1 sukuk. The proceeds of the issuance are expected to provide Shariah-compliant financing and refinancing for certain sustainable projects, according to the Bank’s Sustainable Finance Framework.

With governments in the region seeking to invest heavily in the renewables sector and corporates incorporating ESG principles in their operations and financing, ESG investment opportunities are rapidly emerging in GCC markets, reshaping the region’s financial landscape.

Issuers in the region have also come under pressure from foreign investors, mainly from Europe and the US, to cater to demand for investments classified as “green” or “sustainability-linked”, which could eventually become a point of access for tapping international capital markets.

ESG sukuk issued by Gccbased entities, which began in 2018, has reached a total value of $10.6 billion, or 59 per cent of cumulative global issuance up to Q1 2022. Saudi Arabia has now become the largest market for ESG sukuk, worth a total of $7.9 billion

In March, Qatar’s Ministry of Finance announced the government’s plans to issue international green bonds, having held talks with lead arrangers back in January.