Green Sukuk

Initially developed in Indonesia, Green Sukuk is a financing bond developed specifically for ‘shariah compliant investments in renewable energy and other environmental assets’¹. This targets both the Islamic finance and the green finance sectors. Since funding remains a main challenge for environmentally responsible projects, the aim of these bonds is to contribute to mitigating climate change and preserve biodiversity².

Both Islamic and conventional investors are eligible to invest in green sukuk, however, the finances may only be used for initiatives that are environmentally friendly³. These are broadly defined by the Climate Bond Standards certification and include solar parks, biogas plants, wind energy, energy efficiency projects, renewable transmission infrastructure, electric vehicles and infrastructure, or green financial subsidies and similar instruments⁴.

Two major Green Sukuks were launched in Dubai in 2019 and 2020 by Majid Al Futtaim, amounting to a total of $1.2 billion. The fund uses the International Capital Market Association (ICMA) Green Bond Principles to determine eligibility, and invests in projects that fall within one or more of the following categories⁵:

• Renewable Energy
• Energy Efficiency
• Sustainable water management
• Green buildings

This has allowed the corporation to raise money for a large number of developments and LEED certified buildings, including hotels, offices, and shopping malls⁶. Some of the prominent developments from these include the Hilton Garden Inn, Sheraton at Mall of the Emirates, and the City Centre shopping malls in Mirdiff ⁷.

Subsequently, a study released by Fitch in November 2023 indicated that almost 81 percent of global Green Sukuk issuance came from the UAE, amounting to the $1.8 billion⁸. In 2020, Majid Al Futtaim owned the world’s first hotel portfolio with a LEED platinum certification⁹.

The first green sukuks in the UAE were launched under the Green Finance Framework 2019 of Majid Al Futtaim, by enlisting major banks to fund the sukuks¹⁰. Joint coordination on this program is led by Citigroup, HSBC, and Standard Chartered, along with Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Dubai Islamic Bank, and First Abu Dhabi Bank¹¹.