Financing a Sustainable Future: High-Level Working Group on Green & Sustainability Sukuk releases its first report

Dechert Partner Patrick Lyons, along with associate Nick Quarrie, are members of the High-Level Working Group on Green Sukuk (HLWG), jointly founded by The Islamic Finance Council UK (UKIFC), HM Treasury (UK), Ministry of Finance in the Republic of Indonesia Ministry, Islamic Development Bank, London Stock Exchange Group and the Global Ethical Finance Initiative (GEFI). The HLWG recently published its first report, “Financing a Sustainable Future".

The report provides insights on the green and sustainability sukuk market, discusses key recent transactions and regulatory developments, provides views from key industry stakeholders conducted through discussions of the HLWG and an industry survey, and features a roadmap outlining key recommendations to facilitate the development of the green and sustainability sukuk ecosystem globally.

Key findings include:

• Sukuk have been the main driver of ESG debt issuance in the GCC, making up 80% of green and sustainability bonds sold by GCC-based issuers during the first half of 2022.
• On average, 82% of annual green and sustainability sukuk have been issued in international markets since 2018, reflecting strong demand from overseas investors.
• Indonesia and the GCC are the leading jurisdictions for green and sustainability sukuk, together making up 53% of total issuance.
• On average, green and sustainability sukuk generated order books worth 4.4 times their offering values, compared with 3.3 times for comparably sampled traditional sukuk.

Patrick Lyons, head of Dechert’s international capital markets practice, said: “We are pleased to be members of the HLWG and welcome the release of its first report. Having advised on a number of pioneering debt transactions under the ESG banner, we believe market participants will benefit immensely from the recommendations in the report and development of the ecosystem for these types of issuance. We expect market participants to take note and take advantage of the increased opportunities for sustainable finance and growth.”

Omar Shaikh, Advisory Board Member & Director, Islamic Finance Council UK (UKIFC), commented: “We are pleased the HLWG has filed its first report which finds that despite the increase in the issuance of green and sustainability sukuk, there is scope for greater capacity building across issuers, investors and professional services to scale the market to serve the Islamic world.”

Shrey Kohli, Head of Debt Capital Markets, London Stock Exchange, and Chair of the HLWG on Green and Sustainability Sukuk, said: “The growth of green and sustainability sukuk will enable more countries and companies to access finance in a manner consistent with their faith and values. As sukuk are linked to assets that may be eligible for green and social projects, they will become vital tools to fund the U.N. Sustainable Development Goals and the just transition to Net-Zero, as has been evidenced by transactions by Working Group members such as the Islamic Development Bank and Etihad Airlines.”

“I sincerely thank all members of the HLWG for their expertise and insights. We look forward to working with the market to implement the recommendations as head towards the next two COPs in Egypt and the United Arab Emirates.”

Mustafa Adil, Head of Islamic Finance, Data & Analytics, LSEG, said: “As we approach COP27, it is our aim this report will inform and encourage more countries to adopt green and sustainability sukuk as an innovative approach for financing their SDGs and sustainable development plans.”

Read the full report here.