Green sukuk market set for take off as demand grows, say experts

TheEdge Fri, Sep 30, 2022 12:19am - 1 year View Original

KUALA LUMPUR (Sept 29): Islamic finance experts believe there is a real opportunity for the green sukuk market to take off and grow further globally, albeit requiring greater standardisation and regulation.

Global Islamic Finance Forum 2022 (GIFF2022) chairman Arsalaan Ahmed said this is supported by the growing confidence in the green sukuk market, with optimistic predictions on growth in demand. 

“The optimism is built on strong foundations, given the growing focus on sustainable investments in the Arab world,” he said in conjunction with the upcoming GIFF 2022 from Oct 5-6 in Kuala Lumpur. 

The event, themed “Take the Reins”, would be organised by the Association of Islamic Banking and Financial Institutions Malaysia (AIBIM), in support of the Malaysia International Islamic Financial Centre (MIFC).

It is aimed at generating an active discourse on the work required to strengthen Islamic finance’s global leadership.

Meanwhile, Arsalaan noted that a study with 346 leading Islamic finance professionals found that 83% of Islamic finance professionals expect demand for green sukuk-shariah-compliant investments in renewable energy and other environmental assets to increase over the next three years.

On the other hand, 25% expect a dramatic increase in demand for green sukuk.

“Research points to the decarbonisation strategies of Gulf countries and a recent report has claimed [that] the Gulf Cooperation Council (GCC) can unlock US$2 trillion (US$1=RM4.62) in cumulative gross domestic product (GDP) contribution.

“This will provide more than one million jobs, in addition to bringing in foreign direct investment in sustainable industries through green finance,” he said. 

Arsalaan also said Islamic finance professionals see governments increasingly adopting the approach of the Malaysian authorities that bear the costs of third-party checks for issuers of Socially Responsible Investment (SRI) green bonds. 

Over the next five years, around 80% forecast an increase in government incentives for those considering investing in green sukuk, he said.

“A possible issue, however, is the technical knowledge of shariah scholars when it comes to green and sustainable investment. 

“Just 39% believe it is good or excellent, while 19% worry it is poor or very poor, and 36% say it is average,” he added. 

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