Sukuk can be divided into four several types based on the structure namely: asset-based Sukuk, asset-backed Sukuk , exchangeable Sukuk and hybrid Sukuk. Most of the outstanding Sukuk issuances are asset-based. Green Sukuk Certificate in Middle East, UAE, Saudi Arabia, Qatar, Oman & Bahrain. Green Sukuk Certification in UAE, Green Bonds verification in UAE, Green Sukuk Certification in Saudi Arabia, Green Bonds verification in Saudi Arabia, Green Sukuk Certification in Oman, Green Bonds verification in Oman, Green Sukuk Certification in Qatar, Green Bonds verification in Qatar, Green Sukuk Certification in Bahrain, Green Bonds verification in Bahrain
Since their creation in 2008, green bonds have publicized the role finance can play in protecting the planet while opening up new opportunities for investors to use monetary resources to support environmental goals. As of June 2019, the World Bank had issued over 150 green bonds in markets around the world, generating close to $13 billion.
Yet because they are typically structured as interest-bearing investments, conventional green bonds may not meet the needs of investors who adhere to the principles of Islamic finance. For these investors, green sukuk represent an alternative.
What Are Green Sukuk?
Broadly speaking, sukuk are financial instruments designed to comply with Shariʽa law, which is the broad set of rules that define Islamic doctrine. While sukuk are often referred to as “Sharia-compliant bonds,” they are structured more as equity-based financial instruments than fixed income financial instruments, since any form of fixed income or riskless return is not Sharia-compliant. When investing in a sukuk, an investor purchases a certificate from an issuer who uses the proceeds to buy an asset; instead of earning interest, the investor periodically earns a share of the profits. Ventures funded by sukuk must assume some risk to provide a product or service to the market, and as a partial owner, the holder of the sukuk shares in both the risk taken and the resulting revenues. The venture must not benefit from forbidden industries, such as gambling or tobacco. Sukuk were developed in markets where most participants are Muslim, but in recent years there has been broader global demand for them, according to the Association of Corporate Treasurers. Green Sukuk Certificate in Middle East, UAE, Saudi Arabia, Qatar, Oman & Bahrain. Green Sukuk Certification in UAE, Green Bonds verification in UAE, Green Sukuk Certification in Saudi Arabia, Green Bonds verification in Saudi Arabia, Green Sukuk Certification in Oman, Green Bonds verification in Oman, Green Sukuk Certification in Qatar, Green Bonds verification in Qatar, Green Sukuk Certification in Bahrain, Green Bonds verification in Bahrain
Green sukuk are sukuk used for financing environmentally sustainable initiatives. For example, they may fund renewable energy production, waste management, sustainable agriculture, the construction of energy-efficient buildings, natural resource management, or other endeavors that benefit the environment or mitigate climate change risks. The first green sukuk was issued in 2017 by Malaysia’s Tadau Energy, and the issuance raised $58 million for solar projects. Moreover, the Islamic Development Bank launched its first green sukuk in late 2019, a €1 billion listing on Nasdaq Dubai.
Conventional green bonds may not meet the needs of investors who adhere to the principles of Islamic finance.
The Green Sukuk and Working Party (GSWP) has been established by the Clean Energy Business Council (MENA)(link is external), the Climate Bonds Initiative and the Gulf Bond and Sukuk Association(link is external) (GBSA), to promote and develop Shari’ah-compliant financial products to invest in climate change solutions.
GSWP is a collaboration of experts in project development, environmental standards, capital markets, actuarial compliance and Islamic finance.
The GSWP will:
- Design Green Sukuk architecture, so that product issuers can offer and investors can access products with confidence about their compliance with Shari’ah law and ethical standards.
- Promote the concept of Green Sukuk and other green Islamic finance products to governments, investors, product originators and other interested parties.
- Engage with Governments and development banks about supporting appropriate project development and the growth of a Green Sukuk market.
- Inform the market by promoting best practice, convening industry forums and developing template models.
About Sukuk
Sukuk are Shari’ah compliant securities backed by a specific pool of assets.
‘Sakk’ (sukuk is the plural) signifies an instrument evidencing financial obligations.
A sakk represents a proportionate beneficial ownership in an underlying pool of assets, or ‘usufruct’.
The sakk was used as a form of promissory note 1000 years ago at the height of the Islamic mercantile era; the word ‘cheque’ can trace its origins to it.
Typically, sukuk returns are linked to returns and cash flows generated by the assets purchased or created through the proceeds of the sukuk.
Most sukuk to date have been asset-backed (e.g. infrastructure projects), where credit of the originator has been the decisive factor for ratings and investor analysis, in accordance with Shari’ah principles.
A number of issues have been government or quasi-government backed for rating purposes.
Demand
There is a growing demand in the Middle and Far East for Shari’ah-compliant or Islamic bonds, but a shortage of product.
An estimated 25-40% of institutional investors’ assets under management are dedicated to fixed-income debt, including asset-backed securities.
The sukuk market is well-suited to channel the growing global pool of Shari’ah-compliant capital to fund renewable energy and climate change projects.
There is a preference for sukuk where it is easy to understand the underlying assets, how the return is generated and how secure that return is.
Green Sukuk
Green Sukuk are Shari’ah compliant investments in renewable energy and other environmental assets. They address Shari’ah concern for protecting the environment.
Proceeds are used to finance construction, to refinance construction debt, or to finance the payment of a government-granted green subsidy. They may involve securitizing future income cash flows from ring-fenced projects or assets with specific criteria attached.
While there are many opportunities for Green Sukuk in the solar energy plans of Gulf countries also have significant potential for renewable energy for sustainable development, plus have significant requirements for investment to protect themselves from the impacts of climate change. Green Sukuk Certificate in Middle East, UAE, Saudi Arabia, Qatar, Oman & Bahrain. Green Sukuk Certification in UAE, Green Bonds verification in UAE, Green Sukuk Certification in Saudi Arabia, Green Bonds verification in Saudi Arabia, Green Sukuk Certification in Oman, Green Bonds verification in Oman, Green Sukuk Certification in Qatar, Green Bonds verification in Qatar, Green Sukuk Certification in Bahrain, Green Bonds verification in Bahrain
Eligible assets
Eligible assets for Green Sukuk are defined by Climate Bond Standards certification.
They can be:
- Solar parks
- Biogas plants
- Wind energy
- Ambitious energy efficiency
- Renewable transmission and infrastructure
- Electric vehicles and infrastructure, light rail
- Or could finance a government green payment/subsidy
Green Sukuk in Action
Green sukuk have caught the attention of diverse investors. In 2018, Indonesia issued the world’s first sovereign green sukuk, drawing banks, asset managers, and pension funds from Asia, the US, the EU, and other regions. The $1.25 billion in proceeds funded public services such as the development of solar power plants, the construction of a double-track railway to shift transportation away from cargo trucks, improvements to a waste management system, and the building of reservoirs. In addition to environmental impact, projects furthered economic growth and infrastructure development.
The Clean Energy Business Council, the Climate Bonds Initiative, and the Gulf Bond and Sukuk Association have created a working group to design green sukuk to address climate change. The initiative plans to educate the public on green sukuk through industry forums and to have a dialogue with governments and development banks about advancing the green sukuk market.
It has also been suggested that the idea of green sukuk could be modified to create blue sukuk, corresponding to blue bonds, which finance initiatives that conserve ocean resources and facilitate sustainable development in coastal regions.
For Environmental Product Declaration in GCC (EPD), refer to https-www-envirolink-me-environmental-product-declarations-epd/
For Health Product Declaration in GCC (HPD), refer to https://www.envirolink.me/health-product-declarations-hpd/
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