Sustainable sukuk brings ESG to Shariah investing

New guidance on the issuance of green, social, and sustainability sukuk has been issued by the International Capital Market Association (ICMA), the Islamic Development Bank (IsDB), and LSEG (London Stock Exchange Group), who convened at COP28 in December 2023.

The guidance aims to provide issuers and other key market participants with practical information on how sukuk may be labeled as green, social, or sustainable and aligned with the ICMA Principles through examples, case studies, and best practices, thus helping the development of the sustainable sukuk market.

$13.4 billion sukuk issued in 2023

The guidance also includes data from LSEG reflecting the current state of the sustainable sukuk market, which has now seen over $47 billion in issuance since 2017, with $13.4 billion issued in 2023 – a 42% increase from the previous year.

The guidance confirms the wide applicability of the Principles across the global sukuk market and helps ensure that the market continues to develop with high standards and integrity.

ICMA, IsDB, and LSEG intend to engage with a broader set of stakeholders on the guidance in the coming months, including Sha’riah boards, regulators, rating agencies, non-profit organizations, and other market participants to ensure that the guidance is embedded across various markets.

Sustainable sukuk is consistent with Shariah investing

Bryan Pascoe, Chief Executive of ICMA, said: “Today’s launch marks a critical step in establishing and maintaining globally consistent standards in the key growth segments of sustainable finance and Islamic finance. We believe the guidance is an important building block for further ‘scaling-up’ of sustainable finance instruments, including sustainable sukuk, to help plug the massive climate funding gap, as well as raise finance for other environmental and social goals.”

H.E. Dr. Muhammad Al Jasser, President of IsDB, added: “This industry initiative is another milestone achievement that demystifies the Sukuk asset class, defines sustainable sukuk, and demonstrates their alignment with the ICMA Principles. This is crucial to expand the sukuk market, attract more investors, and unleash more capital towards the SDGs.”

Julia Hoggett, CEO of the London Stock Exchange, commented: “This initiative, announced at COP28, was crafted through consultations with key stakeholders in the sustainable bond and sukuk markets, including leading issuers, investors, underwriters, and law firms. The guidance confirms the wide applicability of the ICMA Principles and that all project categories and themes for use-of-proceeds bonds, such as gender, blue, and transition, are consistent with Shariah investing.”