Green Finance: The Introduction of Green Sukuk and Bond Development

Green Finance: The Introduction of Green Sukuk and Bond Development

Green Finance: The Introduction of Green Sukuk and Bond Development

Capital Markets Malaysia (CMM) in association with the Securities Commission Malaysia (SC) and the World Bank Group (WBG), conducted a technical workshop on green sukuk and the bond market development on 10th July 2017 with the purpose to create a focus towards green bonds and sukuk; to develop a greater understanding of recent developments and the current framework available in Malaysia for green initiatives and how such instruments can be utilised as an appropriate funding solution.

Climate change is a global problem indicating the need for an internal cooperation in tandem with local, national and regional policies on many distinct environmental matters. The Paris Agreement in 2015 was built upon the settlement to bring all nations with a common cause to commence ambitious efforts to combat climate change and adapt to its effects, with enhance support from the public and private entities. Therefore, it projects a new course in the global climate effort.

Subsequently, green financing has seen an upward trajectory with most countries entering the line of a more sustainable and responsible investing that promotes environmental friendly investments. The supply for green instruments today is increasing rapidly and according to Danajamin Nasional, 2016 was a record year for green bonds since the market saw US$86 billion worth of issuances globally, doubled the issuances in 2015 with a mere US$42.2 billion.

Green bonds are debt instruments used to finance green projects that deliver benefits and do not pose threats to the environment. The proceeds of green bonds are dedicated for “green projects”, the purposes of which should be transparent to investors in order to maintain market reputation that is applied to finance or re-finance the eligible green projects.

For bonds to be green, an issuer must comply with three requirements:


Source: The World Bank

Faris Hadad-Zervos, World Bank’s Group Representative to Malaysia, Country Manager and Head of the World Bank Global Knowledge and Research Hub in Malaysia, was the keynote speaker during the technical workshop. He stated that “In Malaysia, the World Bank through the global knowledge and research hub is part of the technical working group supporting the Malaysian green finance program, leveraging from our experience and expertise in green financing across the world.

“The objective of the program is to encourage investments in greener sustainable projects through the development of green Islamic finance markets initially in Malaysia and subsequently in the ASEAN region, and subsequently moving to the Middle East, Gulf Cooperation Council (GCC) and other countries of the world”.

Therefore, the commonalities in the areas of green financing and Islamic finance is guiding the increasing supply of green bonds together with green sukuk in the market. Green sukuk are Shariah compliant investments in renewable energy and other environmental assets.

“Through the SC’s close partnership with the World Bank and Bank Negara Malaysia, Malaysia should soon witness the launch of the Inaugural Green Sukuk which hopefully will kick-start and build the partnering line of sukuk issuances in the months to come” said Mohd Radzuan Tajuddin, General Manager, Development and Islamic Markets of the SC during his opening remarks at the technical workshop.

Many countries are now looking into the lines of green financing that involves proper green initiatives and projects, both government linked or privately institutionalised, especially in the current position of green finance to introduce more green instruments and to improve their green bonds development in a variety of sectors due to its increasing popularity.

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