Green Sukuk: Islamic Finance Contribution to Sustainable Environment

By Dian Andari and Yunice Karina Tumewang

The search for sustainable and Shari’ah compliant investing is over. Green Sukuk is on its way but not without a few bumps on the road. This article highlights Green Sukuk as an environmental-friendly alternative to customary investing as well as the challenges it faces amidst an unknowing public.

 

In 2018, the Environment Performance Index (EPI) by Yale University, which recorded a positive correlation to Gross Domestic Product (GDP), served evidence that material prosperity supports the infrastructure availability to preserve human well-being and ecosystem sustainability1. However, the index still falls below the target noting that there is room for improvement in the environmental and economic agenda. According to the survey, Sub-Saharan Africa, Middle East and North Africa score the lowest in the index by region. Dependencies of countries in the respective region on oil/gas and mining industry, poor public health facilities and low commitment for research and development to promote innovation in alternative renewable energy contribute to the depleted index scores.

Providing financing in creating a sustainability development is familiarly known as green finance. According to Climate Bonds Initiative, sustainable projects and infrastructures could be categorised within several pipelines by sectors including transportation, energy, water and waste management and built environment. Upon the Paris Agreement in 2016, green bonds oversubscribed portraying the global positive response. The global green bond market share is dominated by the United States of America with 20% followed by China, France, Germany, Netherlands with 18%, 8%, 5%, and 4% respectively2. Yet, other countries still keep trying to maximise their market share as a contribution to the sustainable development agenda.

 
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About the Authors

Dian Andari, S.E., M.Sc. earned her Master of Islamic Finance and Management degree from Durham University, United Kingdom. Currently, she is working at Universitas Gadjah Mada Indonesia as an academic assistant. She is interested in corporate reporting, Islamic finance, and governance issues. Her current research involves accounting innovation and regulation trajectories and religious aspects on accountability.

Yunice Karina Tumewang, S.E., M.Sc. currently serves as a lecturer at the Accounting Department of Islamic University of Indonesia. She earned her Master Degree in Islamic Finance from Durham University, United Kingdom. Her research interests are Islamic Banking & Finance, Islamic Pension Fund, Islamic Accounting, and Islamic Social Finance.

 

References

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2. “Green Bonds: The State of the Market 2018,” Climate Bonds Initiative, last modified March 6, 2019, accessed April 5, 2019, https://www.climatebonds.net/resources/reports/green-bonds-state-market-2018.
3. “World Economic Outlook (October 2018) – GDP, Current Prices,” accessed March 31, 2019, https://www.imf.org/external/datamapper/[email protected]; “Data for Saudi Arabia, United Arab Emirates | Data,” accessed March 31, 2019, https://data.worldbank.org/?locations=SA-AE.
4. Newsletter, “World’s First ESG Sukuk Fund Another Step Forward for Malaysia’s Responsible Finance,” I-FIKR ISRA, accessed March 31, 2019, https://ifikr.isra.my/news/post/worlds-first-esg-sukuk-fund-another-step-forward-for-malaysias-responsible-finance.
5. Emma Dunkley, “Indonesia Issues World’s First Green Sukuk Bond,” FT.Com; London, February 23, 2018, accessed April 21, 2019, http://search.proquest.com/docview/2121966290/citation/8D7F496D149B4359PQ/1.
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7. Lee Irvine, Michael P. Grifferty, and Alice Cowman, “Green Sukuk: The Race to Be First,” Islamic Finance News, November 5, 2014, 44 edition, https://d381ia8eydvlkf.cloudfront.net/wp-content/uploads/2017/05/Green-Sukuk-The-Race-to-be-First.pdf.
8. Raajeev Batra, “Adding a Green Hue to Raising Funds,” Gulf News, March 2, 2016, accessed April 21, 2019, https://gulfnews.com/business/analysis/adding-a-green-hue-to-raising-funds-1.1682828.