New report estimates an additional US$30-50bn can be raised by 2025 through green and sustainability sukuk to deliver the United Nation’s Sustainable Development Goals.
Indonesia – 28th September 2021, United Nations Development Programme (UNDP), in partnership with the Islamic Finance Council UK (UKIFC), has today launched a pioneering report setting out the important role Islamic finance can play in delivering the finance needed across the world’s most vulnerable regions.
The UN Climate Summit (COP26) in Scotland, in less than six weeks’ time, brings together world leaders to hammer out a deal to reduce greenhouse gases and adapt to the impacts of climate change. The report shows how green sukuk bonds can provide a major part of the US$100bn in climate finance needed for developing countries.
UKIFC Managing Director Omar Shaikh presented the report’s findings to over 500 senior finance leaders at the first Islamic Finance and the Sustainable Development Goals Virtual Global Summit that took place today.
Sales of new Green sukuk bonds have grown from US$500m in 2017 to US$3.5bn in 2019. The Republic of Indonesia (ROI), in partnership with the UNDP, issued the world’s first Government green sukuk in March 2018 (raising US$1.25bn) and the world’s first retail green sukuk in November 2019 (raising IDR1.4trn or USD$104.4m).
The report takes a detailed look at the best practice approach to green sukuk taken in ROI and other Islamic finance regions.
- Upfront investment is needed to develop a green framework and independent certification to assure investors that green sukuk bonds are not greenwashing.
- Demand from western global investors for Environmental, Social, and Corporate Governance (ESG) investments gives green sukuk bonds the opportunity to attract major new investors who otherwise would not have considered sukuk bonds for their portfolios.
- Green or sustainability sukuk bonds might lower the cost of raising vital climate finance. Malaysia has seen the largest volume of sukuk issuances supported and facilitated by a number of Government initiatives.
- Indonesia has a very limited corporate sukuk market and has not seen any corporate green sukuk issuances. There is a need to ensure sukuk have a level playing field with no additional burdens in comparison to conventional bonds; in addition, tax incentives could encourage corporate sukuk issuances.
- The opportunity is there for Shariah scholars to positively influence ESG aspects as part of their Shariah review of sukuk issuances.
- A challenge within the Islamic finance industry is the general lack of experience and depth of knowledge in relation to ESG matters. It is recommended organisations such as the Accounting and Auditing Organization for Islamic Financial Institutions take a lead and develop guidance for Shariah scholars.
The principles of Islamic finance are underpinned by the objectives of Islamic law and match many of the aims and objectives of the agenda for sustainable development goals adopted by all United Nations Member States in 2015 to provide a shared blueprint for an urgent call for action by all countries to end poverty, improve health and education, reduce inequality, and spur economic growth – all while tackling climate change and working to preserve our oceans and forests.
The report demonstrates how this unique alignment of the SDGs and Islamic finance provides a clear opportunity for green sukuk bonds to bridge the gap in private sector finance needed to meet countries’ climate targets and accelerate achieving their wider Sustainable Development Goals.