Green sukuk creates ripples on prominent environmental concerns

The world needs up to RM360t worth of investments for infrastructure by 2030


Interest in green Islamic bonds, or sukuks, is rising as global investors seek more social and environmental related projects which require billions in investments.

Securities Commission Malaysia (SC) deputy CEO Datuk Zainal Izlan Zainal Abidin said the world will need up to US$90 trillion (RM360 trillion) worth of investments for infrastructure by 2030.

“Today we are facing numerous social-environmental issues such as the adverse impacts of climate change, poverty and lack of access to healthcare and education.

“This present a significant opportunity for green finance and green sukuk to be part of the mainstream investment for the financing solutions,” he said at the 13th IFN Asia Forum in Kuala Lumpur recently.

 In July 2017, the world’s first green sukuk was issued in Malaysia, under the SC’s Sustainable and Responsible Investment (SRI Sukuk) framework. The sukuk milestone is attributed to a collaboration between the SC, Bank Negara Malaysia and the World Bank to facilitate the development of green financing.

“The most recent review report on sustainable investment shows that Malaysia is the largest and sustainable investment market in Asia outside Japan by asset size with a 30% market share,” he said, adding that Malaysia is well positioned to benefit from this fast-growing market segment that has US$23 trillion in assets under management globally.

According to the Malaysia International Islamic Financial Centre, Malaysia is regarded as the largest market for sukuk and Islamic financing, having contributed 51% to the global sukuk outstanding and 36.5% of global Islamic AUM as at end-2017.

Financial advisory firm, NewParadigm Capital Markets Sdn Bhd MD Charanjeev Singh said the green sukuk is the “trend” that has received support from investors and regulators on a global scale.

“It is no doubt that investors are trying to get on that bandwagon for as much as possible on the green sukuk, because it is “in-fashion”.

“To be fair, investors also want to be seen contributing, not just in terms of profit, but also in a sustainable manner, in line with making sure that the investment does not adversely impact the environment,” he said.

Charanjeev said more green sukuk issuances are expected to take up the Islamic finance space as Malaysia continues to be the catalyst for Islamic bonds, driven by corporates and government-related entities.

“There will be more issuances on the renewable-energy sector, in addition to real estate players who are looking at the green sukuk as a means to get their project certified as green-friendly.

“Clearly there is an advantage from the economic standpoint, as well as acceptance as investors are willing to invest in sukuk,” he added.

Meanwhile, Charanjeev said the focus on the sukuk market has largely been big government-owned companies.

“The market here has been successful as a listing platform as it has been fairly liquid, broad and deep, in the sense that you can do issuances up to 20 to 30 years at a fixed rate.

“The next level of development would be to facilitate the middle- market or the mid-sized companies, and not necessarily the government- owned or government-linked, but the A or AA ratings.

“This will be the next challenge as liquidity has been holding back investors from putting money in these companies,” he said.


*This article has been revised and edited accordingly.