Green Sukuk Predicted to Surge Amid Decarbonization Push
Currently investor interest in green sukuk is on the rise.
REPUBLIKA.CO.ID, JAKARTA -- Reducing carbon emissions requires contributions from various sectors. One of them is by issuing green sukuk. Based on a Moody's Ratings report, today investor interest in green sukuk is rising as one global decarbonization effort.
Although not yet dominant in the sharia financial market, green sukuk have begun to be in demand in the Middle East and Southeast Asia region. Through the first half of 2024, global green sukuk issuance increased 21 percent year-on-year (yoy) to 6.8 billion U.S. dollars or about Rp 102.98 trillion.
This figure outstrips the 8 per cent decline in conventional sustainable bond issuance. Sustainable sukuk account for only 5.4 per cent of total sukuk issuance compared to conventional continuing bonds which account for 12 per cent of overall bond issuance.
“Green sukuk issuance increased from a low point. We expect issuance in 2024 to surpass the 10.6 billion US dollars (Rp 160.53 trillion) recorded in 2023, driven by an increasingly strong push towards decarbonization, expansion of policy efforts, and strong investor demand,” said Assistant Vice President and Analyst at Moody's Abdulla AlHammadi, quoted from Zawya, Friday (27/9/2024).
The Cooperation Council for Arab States in the Gulf Region (GCC), led by the United Arab Emirates (UAE), has been the main driver of the issuance of sustainable sukuk, covering 82 percent of the total in the first half of 2024.
Decarbonisation plans, renewable energy targets, and the need to reduce reliance on hydrocarbons are also driving demand for sustainable sukuk.
“These instruments serve not only Islamic investors but also conventional investors looking for sustainable investment strategies,” he said.
Transparency in the use of funds is the main attraction of sustainable sukuk, which attract strong international demand. About 74 per cent of the sustainable sukuk have been issued in non-local currencies, indicating global interest.
The International Capital Market Association's (ICMA) guidance on sustainable sukuk, released in April 2024, provides issuers with clear labelling criteria. Government initiatives, such as taxonomy and sustainable financial incentives, will further boost publishing.
Moody's also forecast there will be an increase in ongoing sukuk issuance from public and private sector entities. Saudi Arabia and Oman are likely to issue their first sustainable sukuk, while more private companies, including financial institutions, will explore these instruments to attract a wider investor base.
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