Page 93 - CMA Journal (Mar-Apr 2025)

ECONOMY
O THER F EATURES
WATCH

By ICMA Research and Publica ons Department

Green Sukuk is Building a Sustainable

and Inclusive Future for Pakistan

Pakistan’s first sovereign domestic Green Sukuk – a 3-year, sukuk market growth, Saudi Arabia (64%), the UAE (28%),
Rs. 30 billion Ijarah bond – was launched on May 16, 2025, and Malaysia (8%) lead issuance. Despite volatility from
at the Pakistan Stock Exchange. This landmark issuance factors like US tariffs, the market’s credit profile remains
will finance climate-resilient energy projects (including stable, with risks including oil price swings, greenwashing,
three dams) under a new Sustainable Investment Sukuk and evolving Shariah-compliance. These trends underscore
framework. The government emphasized that broad ESG sukuk’s growing role as a reliable tool for sustainable
investor participation was invited — including local retail finance in emerging markets like Pakistan.
and institutional investors, NRPs/RDA holders, and
foreign funds — and that the Sukuk will be listed on the
PSX, reflecting growing market confidence. Through this,
Pakistan has increased its share of Shariah-compliant
debt to about 14% of domestic borrowing (approximately
Rs. 5 trillion out of Rs. 37 trillion). This introductory green
Sukuk marks Pakistan’s entry into ESG Sukuk finance: a
Shariah-compliant way to fund green infrastructure.
Green Sukuk blend Islamic finance with ESG principles by
offering Shariah-compliant, asset-backed instruments that
fund sustainable projects such as renewable energy,
pollution control, and climate adaptation. Their risk-sharing
structure and alignment with both Islamic law and
environmental goals attract faith-based and ESG-focused
investors alike. Source: S&P
International Agencies Perspective on Sukuk International Case Studies on Sukuk Adoption
Fitch Rating on Global ESG Several non-Muslim countries have successfully adopted
sukuk, not only as a funding tool but also as a strategic move
Sukuk Market 2025
to broaden their investor base, promote financial inclusion,
Fitch forecasts the ESG sukuk market will exceed USD 50 and strengthen ties with Islamic markets.
billion in 2025, led by Saudi Arabia, the UAE, Indonesia, and
Malaysia, after growing 23% in 2024 to capture 20% of Hong Kong
emerging-market ESG dollar debt. Most issues are Since 2014, Hong Kong has issued three USD
investment-grade, but issuers face risks related to Shariah sukuk, including a landmark US$1 billion
compliance, geopolitics, and oil prices. Pakistan’s 2025 sukuk with a 10-year tenor in 2021 by its AAA-rated
debut could unlock sustainable finance, climate-resilient government. Earlier issuances attracted strong investor
infrastructure funding, and broaden the investor base. demand from the Middle East and Asia, highlighting Hong
Kong’s growing role in Islamic finance.
S&P Global Rating on Sukuk
Ratings As of May 15, 2025, the S&P index Luxembourg
stood at 187.37 USD, with a 10-year
In 2014, Luxembourg issued a €200 million
annualized return of 5.11%, reflecting Shariah- compliant sovereign sukuk and
steady growth despite pandemic-related dips. This resilience became a leading European center for Islamic finance. By Q3
mirrors the broader ESG sukuk market in emerging markets 2021, it hosted 30 Shariah-compliant funds. Over six years,
(excluding China), where ESG sukuk now represent over 50% its Islamic mutual fund industry grew 122%, reaching USD
of total ESG debt issuance in 1Q25, up from about 20% in 6.7 billion in AUM. Despite having no Islamic banks or takaful
2024. With global ESG sukuk outstanding reaching USD 50 operators, it leads sukuk listings with 21 sukuk totaling
billion, growing 21.6% year-on-year and surpassing overall around USD 9 billion on its stock exchange.

ICMA’s Chartered Management Accountant, Mar-Apr 2025 91