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Primer on Sustainable Sukuk in the Middle East

14 May 2024

Research has shown that based on a sample of reported subscription results in 9M23, green and sustainability sukuk were 4.6 times oversubscribed on average, compared to 3.6 times for traditional sukuk. The same study also shows that sustainable sukuk have been mostly issued in international markets, with an annual average of 74.5% of total issuance between 2018 and 2022, as opposed to 25.2% international issuances of traditional sukuk.

Research on the Gulf Cooperation Council (GCC) has also observed that the demand for sustainable sukuk has magnified in the region, owing to government efforts to prioritize social and environmental issues, such as United Arab Emirates (UAE) and Saudi Arabia’s commitments to achieve Net Zero target — i.e. a national drive to achieve net-zero emissions — by 2050 and 2060, respectively.

This research also notes that the GCC countries have contributed to the rapid development of the sustainable sukuk market. For instance, the research states that the Qatar Financial Center (QFC) has been at the forefront in launching the GCC’s first regulatory framework dedicated to sustainable sukuk governance, with policies promoting transparency and minimum chances of greenwashing. Similar frameworks have also been set up by the UAE Ministry of Climate Change and Environment and Kuwait’s Capital Market Authority.

Another study notes that other driving forces behind the increasing number of sustainable sukuk issuances is the strong demand from investors who are willing to pay a “greenium” (a premium for going green) for sustainable sukuk, and improved incentives and standards from policymakers.

In keeping with the importance of this developing capital raising Islamic finance instrument, it is important to obtain a basic understanding of not just the instrument itself, but also of how this sukuk differs from the traditional sukuk.

This report provides an overview of sustainable sukuk, with a focus on the Middle East.

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