Global sukuk issuances surged 39 percent to $250 billion in 2021 and continue to grow this year as economies recover from the coronavirus pandemic, according to a report released by the Institute of International Finance (IIF). The report said that the majority of issuances came from Pakistan, Indonesia, Malaysia, the GCC countries and Turkey. “Market activity continues to grow, global sukuk issuance was near $40bn in Jan/Feb 2022, over 7 per cent higher than the same period in 2021,” the IIF said. However, only 2 percent ($5bn) of the total issuances was linked to environmental, social and governance (ESG) factors, compared to 6.5 percent in global bond markets. Expansion of ESG-linked sukuk was fastest in Indonesia, Malaysia, Saudi Arabia and the UAE, with corporations issuing $6bn worth of ESG sukuk since 2016. About 80 per cent of the total cumulative issuance has been in US dollars, 15 percent in Malaysian Ringgit and the rest in euros. Indonesia, the most populous Muslim country in the world, has the largest green sukuk market (proceeds are applied for climate and environmental projects), according to the IIF. Since 2017, Indonesia, Malaysia, Saudi Arabia, the UAE and the Jeddah-based Islamic Development Bank have issued $9bn worth of green sukuk. Sustainability-linked sukuk issuances also rose last year as the importance for green and social impact projects grows amid efforts by countries to transition to a greener economy. Total sustainability sukuk issuance jumped to $3.7bn in 2021 from $1.6bn in the previous year. “The slow pickup of ESG-linked issuance in global sukuk markets largely reflects the limited project pipeline and challenges in identifying projects and assets that meet relevant ESG criteria,” the report said. “A lack of knowledge at the issuer and investor level about the process and benefits is another important impediment to market expansion.” High issuance costs are also curbing the potential issuer appetite, according to the report. Earlier, a separate report by Fitch Ratings said that global sukuk issuances surged by 36.1 percent in 2021 to $252.3 billion and are expected to continue to grow this year. Robust Islamic investor appetite, a diversification in funding goals and Islamic-finance development agendas are expected to drive the growth of sukuk issuance in the region. “Downside risk stems from higher oil prices reducing a number of sovereigns’ funding needs, AAOIFI [Accounting and Auditing Organisation for Islamic Financial Institutions] compliance complexities, traditional risks such as interest-rate rise, lower global investor appetite for emerging-market debt and political risk,” said Fitch.