Home   /   GFH Insights   /   Greek sukuk market is an untapped opportunity set to flourish

Globally, green bonds have surged in recent years as demand for low-carbon investments has increased. Some $517 billion of green bonds were issued by investors last year, a 50% increase on 2020 and 343% increase on 2019.

In the world of Islamic finance, interest has grown, albeit more steadily, for Shari’ah compliant investments – or sukuks – in renewable energy and other assets with a positive environmental impact. Issuance of sustainability-linked sukuks rose by $1.5 billion to $3.77 billion in 2021. And $1.57 billion of green sukuks were issued last year.

The fledgling green sukuk market is yet to realise its full potential but it has the capacity to mirror the skyrocketing green bond sector, where issuances have grown 5,300% in the last decade, according to the World Bank.

Sukuks in the age of ESG

Despite and perhaps partly because of the COVID-19 pandemic, investors have become more focused on ethical investments recently. Sukuks by their nature are ethical: they cannot be used to finance impermissible activities and they are structured to avoid high degrees of leverage and speculation. Shari’ah compliancy prohibits speculation and demands high levels of transparency, meaning the outcome of transactions must not be entirely dependent on chance and all rights and obligations relating to an investment must be clear.

Sukuk issuances are expected to reach up to $170 billion in 2022, according to Moody’s, of which green sukuks will account for a significant portion. Green sukuk issuances grew by more than 17% year-on-year in 2021, reaching $15 billion. The market got off to a strong start in 2022. In March, our subsidiary Infracorp listed a $900 million green sukuk on the London Stock Exchange – the first-ever green sukuk issued by a Bahraini entity. The green sukuk signals a broader regional appetite for sustainable infrastructure development and positions Infracorp as a key player in sustainability investments across MENA and South Asia.

What is a green sukuk?

A sukuk is a financial product whose terms and structures comply with Shari’ah, with the intention of creating returns similar to those of conventional fixed-income instruments like bonds. Unlike conventional bonds, they cannot be used to finance impermissible activities like gambling, tobacco, and weapons manufacturing. They are also structured to avoid high degrees of leverage and speculation. A green sukuk is a sukuk that is issued to finance assets that benefit the environment, such as renewable energy projects. There are several types of green sukuk, including sovereign (issued by a government) and corporate (issued by a private sector organisation).

The sustainability sukuk sector is showing promising growth and now has an opportunity to blossom as economies recover from the pandemic and global green bond issuances look set to top $1 trillion this year.

Green sukuks showed promising early growth ahead of the pandemic, when they first appeared on the market. Since 2017, Indonesia, Malaysia, Saudi Arabia, and the UAE have issued $9 billion worth of green sukuk. Even in the height of COVID-19 in 2020, some $2.56 billion of green sukuks were issued globally. While issuances dipped to $1.57 billion in 2021, the decarbonisation strategies of Gulf countries are set to drive opportunities around funding sustainable projects.

For example, Saudi Arabia plans to generate 50% of its electricity from clean sources by 2030, while the UAE aims to increase the contribution of clean energy in the total energy mix to 50% by 2050. Bahrain has already achieved 95% of the national renewable energy target of 250 megawatts by 2025.

A new report from Strategy & Middle East, called Middle East green finance: A $2 trillion opportunity, highlights the incentives for governments to invest in sustainability related projects. It claims the GCC can unlock $2 trillion in cumulative GDP contribution and more than one million jobs in addition to foreign direct investment in sustainable industries through green finance.

“The GCC will be one of the leading regions for renewables with countries having set out national visions and net zero commitments that will see economies favour the green sukuk market.”

Cultivating green sukuks

Education is the key to unlocking the potential of green sukuks. It is important that potential investors are made aware of the significant opportunities available around investing in environmental projects. Major infrastructure projects can take many years to plan, build and become operational. Investments in materials, logistics and technologies that support climate change goals are long-term and must be treated so.

S&P’s Green Bond Index, which tracks the global green bond market, indicates an average return of -8.94% over a year but a 1.70% increase over five.

Nevertheless, green sukuks generate strong returns and represent low-risk investments. Sectors such as renewable energy are poised for massive growth over the next three decades as the world embarks on an ambitious campaign of decarbonisation. Renewables are set to account for almost 95% of the increase in global power capacity through 2026, with the clean energy market forecasted to reach almost $2 trillion by 2030.

The GCC will be one of the leading regions for renewables with countries having set out national visions and net zero commitments that will see economies favour the green sukuk market. In September 2020, the Saudi Electricity Company issued a $1.3 billion green sukuk which despite its size was heavily oversubscribed. The Saudi-based Islamic Development Bank also raised $2.5 billion through green and sustainability targeted sukuk issuances in March 2021.

The next couple of years will be a particularly exciting and important time for green sukuks. With COP27 and COP28 both taking place in the Arab world, support for sustainability projects will sharply increase in the region and now is an excellent time for investors to harness the opportunities available.

Green sukuks are set to be a central theme at COP27 in Egypt and COP28 in the UAE after a High Level Working Group on Green Sukuk was convened in the UK in November 2021 to identify and address existing challenges, and to ensure green and sustainability sukuk are highlighted at future COP summits.

Unleashing the power of human ingenuity

Infracorp, our infrastructure and sustainability arm, recently listed Bahrain’s first ever green sukuk, a $900 million issuance on the London Stock Exchange. The transaction will enable infrastructure development across the Gulf, North Africa and South Asian regions while providing opportunities that generate returns and have a significant and tangible ESG impact.

Infracorp is building a sustainability ecosystem that is set to play a big part in the Islamic finance market’s contribution to enhancing social and environmental development projects. Through Infracorp, we believe we are playing an important role in the MENA region’s journey to net zero and we invite investors from around the world to join us.

The road ahead

The Islamic financial market has a vital part to play in helping the world to achieve net zero and green sukuks are a key mechanism that enable investors to fulfill their ESG responsibilities.

More than that, green sukuks are emerging as some of the most promising and reliable investments available. Despite having longer cycles, they are closely in line with the global trend for building sustainability projects. Globally, green bond issuances are likely to run into the trillions over the next decade. And capitalising on the opportunity today will see investors reap the rewards in the future.

For green sukuks to really take off globally, there needs to be a greater degree of standardisation in the market, including in terms of regulations. Where green finance in general is concerned, we are seeing positive signs.

According to Strategy & Middle East, which is part of PwC, $130 trillion dollars, around 40% of the world’s financial assets, is now committed by financial institutions to align with the Paris Agreement’s climate goals. As a result, all green finance products will become increasingly standardised as the market agrees on common principles for green finance, it predicts.

There also needs to be greater collaboration on a government level to ensure all countries engaged in the Islamic finance market are aligned with one another, as well as their regulatory bodies. The aforementioned Working Group launched in the UK in 2021 shows we are beginning to see progress. With greater alignment and transparency comes trust, which is a key criterion of investing.

Finally, governments should also look at providing incentives. The Malaysian government, a leader in the green sukuk market, does this by paying the costs of third-party checks for issuers of SRI green bonds.

There is a long way to go. But undeniably, the seeds are sown and green sukuks are emerging. Investors now have a chance to not only build robust portfolios that can weather future economic cycles, but perhaps more importantly, to secure a better future for the next generation.

Fast Facts


green bonds issued (2020)


green sukuks issued (2021)


growth of green bond issuances (2010-2020)