Malaysia’s potential to Lead in Green Islamic Finance
Click pictures for Sean's interview : a quick 4-minute insight into how Malaysia can be a world leader in kick-starting a global green sukuk market
Kuala Lumpur: The concept of green sukuk has received increasing attention in the finance community this year. The annual World Islamic Economic Forum held last week dedicated a session exclusively to Islamic Finance for Green Technologies, and the Prime Minister of Malaysia discussed the concept of green sukuk explicitly in his address to the Forum.
It’s not surprising that this form of Islamic finance is an increasingly popular topic, as it simultaneously taps into two of the fastest growing segments of the global financial markets the last year: sukuk and green bonds.
The next step now is for this growing interest to translate into issuance. We’re yet to see the first green sukuk issued in the markets, although the world’s first social sukuk was issued earlier this year in Malaysia.
“The rhetoric is there,” explained Sean Kidney, CEO of Climate Bonds Initiative in an interview with Bloomberg TV Malaysia. “What we now need, though, is action.”
For a quick 4-minute insight into how Malaysia can be a world leader in kick-starting a global green sukuk market: Check out the video
--
Bonus: Green Sukuk 101 Primer
What is it? Green Sukuk are Islamic fixed income instruments with proceeds for green projects.
Sukuk are “tradable Islamic finance instruments”, consistent with the principles of Shari’ah. Sukuk represent an ownership in underlying assets or earnings from those assets.
While sukuk are often described as Islamic bonds, there are also types of sukuk that have equity-type risk-sharing structures.
Their closest equivalent is probably YieldCos, which offer fixed interest-like returns.
Just as green bonds are a subset of normal bonds with the difference being proceeds are used for green, green sukuk are a subset of sukuk that finance green assets. The asset-focused nature of all sukuk makes it a good fit with the green bonds concept, which is also asset-focused.
Why It’s Important: Combining the momentum of sukuk and green bond market growth.
The investor pool for green sukuk is in both the Islamic world and in OECD markets.
For Islamic investors they provide a means to more easily address Shari’ah concern for environmental protection in investment choices. For green investors in Europe and the US, green sukuk provides a new avenue to meet investment goals for green.
Additional momentum to the potential of green sukuk was added by The Islamic Declaration on Global Climate Change, which was published in August 2015. The Declaration called for action on climate change from governments, business, investors and Muslims around the world.
How Could It Work?
For more details on how green sukuk will work and its benefits, have a look at the chapter we contributed to the Middle East Renewable Energy Guide from the law firm Eversheds and PwC earlier this year.
