GREEN SUKUK

1. Proceeds used to fund environmentally friendly projects

2. Represent property right of underlying asset not right to claim
(Underlying asset = commodity that is to be bought / sold in future)
3. Any organization can be an issuer of green sukuk so long it meets the requirement and
criteria stated in the framework and guideline from SC
4. Challenges of growing green sukuk market:
a. Lack of knowledge & skills
b. High transaction cost
c. Lack of universal standard on green sukuk – most standards set by organizations
- issuing specific sectoral guideline & regulation to aid investors and issuers?
- What constitutes a green project
- Percentages of proceeds should be used to fund green projects
- Extent of supervision post sukuk issuance
 Supervision post-issuance = annual report on proceeds allocation
d. Lack of assessment & green performance evaluation
 Comprehensive due diligence on issuer to determine satisfaction of its green
mandate
 How they handle ESG issues
 Supply chain risks
 Net impact of green project
e. Verification system & independent verification agencies to certify green initiatives
f. Low liquidity in secondary market – small size
g. Low awareness
h. High risk profile of green sukuk projects due to construction & operation of green
technologies
5. Why Malaysia is behind in Green Sukuk Market Development?
- Heavy reliance in profits from oil sector & therefore lower reliance on debt finance
- Local currency cannot compete with USD & Euro, only able to attract local investors,
unlike USD & Euro – size of return after currency conversion influence?
- Not the largest issuer but largest number of issuers
6. Governmental mechanism to support GS issuance?
- Subsidize cost for external review for labelling a sukuk “green”
- Tax incentive for GS issuance
7. Paper reference:
- Sustainable & Responsible Investment Sukuk Framework – guideline for issuer to issue
SRI sukuk, not green sukuk
- ASEAN Green Bond Standard 2017
- ASEAN Sustainability Bond Standard 2018
- ROI Green Bond & Green Sukuk Framework
 include measures & projects within water sector (Flood mitigation, drought
management)
 evaluation process on project – env. benefits project assessed by MOF & Climate
Change Secretariat – validated by MEF to be consistent with Indonesia’s NDC –
endorsed by MOF as tagged for budget allocation
 tagged projects – project development timeline = tenor of GS, comply with
framework’s eligibility
 budget tagging process – identify expenditures on projects that deliver specified
climate change benefits in accordance with ROI climate objectives – currently in
process to expand BTP to biodiversity under Biodiversity Financing Program
 if part of the proceeds is to be used a refinancing, ROI shall issue a ratio of the
proceeds which is used for financing & refinancing to total proceeds