DDCAP Managing Director, Ms. Stella Cox CBE, attends Expert Panel Seminar on Islamic Finance at White & Case LLP on Tuesday 21st February 2017 in London.

DDCAP Managing Director, Ms. Stella Cox CBE, amongst other responsible finance commentators, was in attendance at the most recent seminar on Islamic Finance at White and Case LLP hosted by Partner and Global Head of Islamic Finance Debashis Dey.

Otherwise, the seminar featured two expert panel sessions including Sheikh Bilal Khan, Dome Advisory co-chairman and partner; Mehdi Ababou, Moody’s Vice President, Structured Finance Group, and lastly counsels from White and Case LLP namely Tallat Hussain, Claudio Medeossi and Mindy Hauman.

Please find below an article titled “Green Sukuk are coming” written by Elizabeth Meager and published by the International Financial Law Review (IFLR) following the seminar.


  Green Sukuk are coming

The two asset classes are a perfect fit, but the appetite of Islamic investors for risk and innovation is limited

It’s only a matter of time before the first green sukuk comes to market, according to market  industry leaders. Speakers at a White & Case event last week explained that there’s nothing stopping issuers from drafting a shariah-compliant sukuk save for a lack of top-down support.

In 2016, the climate-aligned bond market grew by 16% to $694 billion, $118 billion worth of which are labelled green. The global sukuk market, which has slowed in recent years, saw $40.3 billion worth of deals issued in the same timeframe. Climate-aligned finance is a fast-growing market that’s open to innovation.

Small precedents

The International Finance Facility for Immunisation (IFFIm) issued the first socially responsible sukuk in 2014, raising $500 million, which it followed up with another not long after. While the IFFIm deal was loosely referred to as green at the time, this was, strictly speaking, socially responsible: the proceeds were used to fund children’s immunisation projects in the world’s poorest countries. That deal put social sukuk on the map and brought conventional investors in,” said Stella Cox CBE, managing director at DDCAP. “Current market conditions would support green sukuk as there is both a need and appetite for innovation.”

Malaysian   sovereign wealth fund Khazanah also issued a RM100 million ($22.5 million) sustainable and responsible (SRI) investment sukuk in 2015, providing schools with funding. Climate Bonds Initiative established a green sukuk working group in 2012 to develop best practices in the space. But progress has been slow in part because markets where Islamic finance is strongest – Gulf Cooperation Council (GCC) countries and Southeast Asia – have either small or non-existent green bond markets.

That’s slowly changing with the launch of the Islamic Declaration on Climate Change in 2015 and the Paris COP21 agreement of the same year – which GCC countries are also a part of.

The issuance of sukuk by atypical Islamic finance jurisdictions including the governments of the UK, Luxembourg and Hong Kong meanwhile have helped to bring conventional investors in to the Islamic space.

For green sukuk specifically, there are pockets of interest. Sovereigns often enquire about how it would work, according to speakers, and the National Bank of Abu Dhabi said it was working on a deal in 2015 before announcing a merger. Top-down support is needed to implement the infrastructure needed for green sukuk. Speakers would like to see a sovereign wealth fund making a significant allocation, for example.

A natural Fit

There’s plenty of similarities between the green bond and sukuk markets. Both are relatively niche, with a focus on responsible investments – sukuk proceeds are forbidden from being used to fund certain industries including tobacco, alcohol and gambling – and both lack a designated legal framework governing deals.

Efforts to standardise and drive innovation in both asset classes have been industry-led, with the exception of a small number of jurisdictions.

“I’d say the same thing that’s holding back green bonds is holding back green sukuk,” said Dey. “The combination of a suitable project or investment, along with the right investor base, just hasn’t happened yet.”

As sukuk tend to have shorter maturities than conventional bonds, a climate-aligned deal would be more risk-intensive which may be less appealing to typical shariah investors.

But speakers explained that there are other ways in which the two types of finance can be brought together. Sukuk might be the most commonly used tradable instrument there is, but to support sustained growth, a more comprehensive suite of tools is needed.

“In our industry we’ve got caught up with the S-word, but sukuk is not the only Islamic finance solution. We want to expand the instrument base but there could be opportunities elsewhere, like shariah funds,” said Cox.

“Regardless, we like our Islamic finance precedents. Green sukuk is going to happen.”


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