Role of green Sukuk towards climate sustainability: cases in selected Muslim countries

Busari, Saheed Abdullahi and Abdul Aziz, Akhtarzaitie and Zakariyah, Luqman (2025) Role of green Sukuk towards climate sustainability: cases in selected Muslim countries. In: Islamic Finance and Climate Action. Rutledge, pp. 141-154.

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Abstract

Innovative financial instruments remain the potential sustainable intervention as the world is experiencing global climate change and environmental degradation amid growing greenhouse gas emissions, deforestation, and waste consumption (Gouett et al., 2023). In recent times, green Sukuk has been gaining the attention of policymakers, especially in Muslim-majority countries. Green Sukuk are Shariah-compliant debt instruments used to finance environmentally friendly projects (Liu & Lai, 2021). Sukuk are Islamic financial certificates as an alternative to bonds by ensuring the underlying projects comply with Islamic law and ethical values that do not involve prohibited activities, such as alcohol or gambling. Hence, green Sukuk are instruments structured specifically to fund projects that have positive environmental impacts (Radzi & Muhamed, 2019). The Islamic finance industry has witnessed significant growth in global and local Sukuk markets, driven by increased demand for Shariah-compliant investments, diversification of funding sources, supportive regulatory frameworks, market innovation, and heightened participation from institutional investors (Liu & Lai, 2021). The study by Aassouli et al. (2018) contends that the growth in the green Sukuk market is driven by increasing awareness of climate change and the need for sustainable development especially in countries like Malaysia and Indonesia. According to Ahmad (2024), the growth of the green Sukuk market in Malaysia and Indonesia remains a model for other countries willing to integrate Islamic finance principles with sustainable development goals. The issuance of green Sukuk aims to fund projects that address pressing environmental challenges while fostering economic growth. Recent market reaction to the increasing demand in green Sukuk is spurred by its socially responsible investment that aligns with ethical values and competitive financial returns. This seems very challenging also for the Sukuk market in delivering the three key promises of Shariah-compliant, sustainable ethical investment and reasonable business returns for investors (Damak, 2023; Utermarck & Kohli, 2024). Green Sukuk enables issuers to tap into a wider range of investors and diversify their funding sources for environmentally sustainable projects. Nevertheless, these instruments encounter challenges such as insufficient standardization, limited awareness among potential investors, and risks of greenwashing, which may compromise their intended environmental benefits. To mitigate these issues, several international organizations, including the United Nations Environment Programme, are advocating for the advancement of green Sukuk as a component of comprehensive sustainability initiatives (Araminta et al., 2022; Liu & Lai, 2021). This chapter explores the role of green Sukuk in promoting climate sustainability, focusing on selected Muslim countries that have implemented green Sukuk instruments. The remaining parts of this study encapsulate into four sections. The first section presents a review of green in selected countries. The second section highlights the strengths, weaknesses, opportunities, and threats (SWOT). The third section analyses the research findings, and the final section highlights the conclusion of the study.

Item Type:	Book Chapter
Subjects:	BPH Islamic Economics > BPH72 Economic development. Growth. Sustainable development. Sustainability BPH Islamic Economics > BPH830.3 Social systems. Urban groups. Cities and towns. Sustainable urban development
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Islamic Revealed Knowledge and Human Sciences > Department of Fiqh and Usul al-Fiqh
Depositing User:	Dr. Saheed Abdullahi Busari
Date Deposited:	29 Dec 2025 09:34
Last Modified:	29 Dec 2025 09:34
Queue Number:	2025-12-Q1368
URI:	http://irep.iium.edu.my/id/eprint/126443

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