Post-COP28 – Islamic Green Finance and Sukuk Opportunities

Global Islamic Finance Industry Set to Upscale its Post-COP28 Climate Action, SDG Financing and De-risking Solutions with the IsDB Group Leading the Way

It was the usual brinkmanship as in the past few Conferences of the Parties (COP) when negotiators continued into the small hours of the night trying to find a workable consensus on the wording of the final communiqué.

In the end, the COP28 in Dubai, UAE made history by becoming the first such meeting to include the controversial ‘FF’ words in its final agreement – working towards transitioning away from the use of Fossil Fuels as opposed to a specific aim of phasing them out altogether.

Altogether COP28 delivered 175 announcements over a spectrum of metrics including finance, trade, risk mitigation, food security and climate action – all in pursuit of the objectives of the Net Zero ambition of the 2015 Paris Climate Agreement and the UN Sustainable Development Goals (SDG) agenda.

In the context of the Islamic finance industry, the symbolism of Dubai and the UAE as the host of COP28 could not be overlooked. After all, Dubai is where the first Islamic bank was established in 1975 – Dubai Islamic bank (DIB) – and the UAE is home to some of the world’s largest Islamic financial institutions where Islamic finance is of systemic importance. They of course include DIB, Abu Dhabi Islamic Bank (ADIB), Emirates NBD Islamic and Al Hilal Bank, to name just a few, most of which had substantive pavilions at COP28 showcasing their commitment to climate action and sustainable finance. 

ADIB for instance successfully priced the industry’s latest Green and Sustainability Sukuk (GESS) issuance of 2023 – a maiden benchmark US$500 million Public Green Sukuk in November 2023 a few days before the onset of COP28. (See story below).

But it was the Islamic Development Bank (IsDB) Group that had the biggest presence, engagement and impact in terms of high-level panel discussions, funding allocations and commitments, the signing of several partnership agreements and memoranda of understanding (MoUs), making COP28 UAE the first such event where the Islamic finance industry got a meaningful and wider exposure and engagement.

Two days before the conclusion of COP28, the IsDB Board of Executive Directors at its 353rd meeting issued a statement of intent for the immediate post-COP dispensation – approving US$2.12 billion in new financing for 16 development projects in member states in key strategic sectors such as transport, energy, health and education, in addition to youth development/entrepreneurship-employment.

IsDB President Dr Muhammed Al Jasser is particularly keen on “working to deepen the Sukuk market to enable the Bank to finance more projects, be they green, sustainability, or through ordinary Sukuk transactions. At the ICMA AGM in Paris earlier this year, IsDB President Dr Muhammed Al Jasser emphasised “the Group’s critical role in plugging the huge financing gap through our resources, bringing in co-financiers from around the world, and leveraging upon the IsDB’s AAA-rating to tap the capital markets through Sukuk issuances.” Dr Jasser has been highly encouraged by the investor response to both the IsDB’s recent Green and Sustainability Sukuk transactions. (See story below).

“We were pleased to see institutional investors from France, Germany, Japan, and the U.K. participate for the first time. Our Sustainable Finance Framework was assigned a very strong Second Party Opinion, and we have a solid ESG risk rating,” he added.

The two standout features from the latest round of US$2.12 billion funding allocation include €803.3 million (US$845.57 million) to Indonesia towards ‘Strengthening Indonesia’s Health Care Referral Network Project’. The objective of the project is to enhance the physical and service capacity of the health referral system in Indonesia, ensuring that everyone has equal access to quality healthcare services in all districts, cities, and provinces; in addition €187.84 million (US$204 million) has been allocated to Morocco towards the ‘Construction of Guercif-Nador Highway Project’, which aims to contribute to improving the connectivity of the Oriental Region and the Nador West Med Port Complex by completing the construction of a 104 km of highway including 17 bridges and 53 flyovers by 2029.

The IsDB Board also approved the following funding of projects in various sectors:

i) €136.86 million (US$144.0 million) to Burkina Faso to improve the living environment of the population and support the transport sector.

ii) US$106 million to Uganda to improve the living environment of the population and support the transport sector.

iii) €55 million (US$58 million) to Mali to help enhancing the country’s electricity grid via modernization and expanding of the high voltage transmission infrastructure.

iv) €64.30 million (US$70.0 million) to Chad to support the higher education sector.

v) €25.24 million (US$27.13 million) to Togo to support the higher education sector.

vi) US$16.90 million to Djibouti towards the Upgrading and Integrated Urban Development Project in Bouloas to improve the livelihoods of people living in slum areas through developing basic economic infrastructure.

vii) US$79 million to the Kyrgyz Republic to improve access to affordable, resilient, and energy-efficient housing for the underserved population, as well as to support the development of the Islamic mortgage market.

viii) US$40 million to the Maldives to contribute towards supporting sustainable and green economic transformation of the Maldivian economy through improved access to Islamic finance while embracing social and environmental responsibilities.

ix) US$200 million to deliver beneficiary‐driven, multi‐hazard resilient, reconstruction of core housing units to people affected by the 2022 floods in Sindh Province, Pakistan.

x) US$27 million to Tajikistan to improve the quality of life of the people living along a road project road as well as contributing to the development of the international transit traffic potential of the country.

In addition, the IsDB Board also approved US$300 million for financing two projects for Türkiye’s earthquake-affected areas, including US$100 million to support the economic recovery of earthquake-affected industrial firms and SMEs in various sectors, and US$200 million to support Türkiye’s efforts towards the rapid delivery of health facilities and services to improve the quality of life of the earthquake-affected population.

In November 2023, just prior to COP28, the IsDB also extended a €40.25 million financing facility to Senegal for the supplementary funding of the Second Phase of the Dakar Regional Express Train (TER) Project. The IsDB had previously provided €300 million for the First Phase of the TER Project linking Dakar and Diamiandio spanning 36 km. This new supplementary €40.25 million financing complements the existing €100 million for the second phase of the project, which links Diamiandio with the Dakar International Airport, covering 19 km.

During the Saudi-Arab-African Economic Conference in Riyadh in November 2023, the IsDB also approved a US$40 million financing facility for Guinea’s towards the financing of the Rural Water Supply and Sanitation Project in Upper and Middle Guinea. The primary aim of this initiative is to elevate the living conditions of rural populations in Guinea, aligning with the government’s commitment to ensuring clean water and sanitation for all, in harmony with SDG 6 in the above region by 2029. The IsDB also approved a €22.33 million financing towards the Second Phase of the Ouagadougou Peri-Urban Dairy Sector Development Project in Burkina Faso.

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