ESG Sukuk: A Next Step in the Evolution of the Global Sukuk Market

In recent years, the relevance and growth of environmental, social and governance (ESG) principles in investments has captured the attention of the global business community. With Shari'ah-compliant investing also continuing to grow, there are significant synergies between principles of Shari'ah and ESG principles. The markets have witnessed the development of innovative Shari'ah-compliant financing structures that align with ESG principles. In 2018, Indonesia became the first country in the world to issue a sovereign green Sukuk and, more recently, in March 2021, the Islamic Development Bank issued its $2.5 billion sustainability Sukuk.​

These issuances have demonstrated that by adding a sustainability component to a Sukuk offering, the potential investor base is broadened such that socially responsible investors outside the traditional Sukuk fixed-income investor space may seek to diversify their holdings and participate in such offerings. We outline below the significant potential for overlap between ESG and Islamic debt capital markets and the opportunities available when aligning the two investment approaches, including a case study of a recent sustainability Sukuk issuance, on which Akin Gump advised, which exemplifies the successful coalescence of Islamic debt capital markets and sustainability.

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