The market for green sukuk is set for takeoff as demand builds, but global expansion will require greater standardisation and regulation, a report by Global Islamic Finance Forum showed on Thursday.
The study, based on a survey of Islamic finance professionals by IslamicMarkets.com, found that 83% of them expect demand for green sukuk – Shariah compliant investments in renewable energy and other environmental assets – to increase over the next three years.
The decarbonisation strategies of GCC countries is expected to unlock $2 trillion in cumulative contribution to GDP. This will provide more than one million jobs in addition to bringing in foreign direct investment in sustainable industries through green finance, the report said.
Around 87% of Islamic finance professionals agree that GCC’s focus on sustainable projects provides a major boost to the green sukuk market.
Total issuance of green sukuk has amounted to $15 billion since 2017, but the Islamic Finance Council UK (UKIFC) is forecasting the market could expand by another $30 billion to $50 billion by 2025.
Of those surveyed 60% Islamic finance professionals supported that estimate, with another 17% forecasting the market could go above $50 billion. Just 23% believe the market will be worth less than $30 billion by 2025.
Furthermore, research found that 87% of Islamic finance professionals believe now is an excellent time for investors to harness the opportunities available in green sukuk, given that COP27 and COP28 are taking place in the Arab world.
However, for green sukuk to take off globally, there needs to be greater standardisation including regulation. Islamic finance professionals are optimistic this will happen, with 88% expecting improvements over the next three years.
(Writing by Brinda Darasha; editing by Brinda Darasha)