Green sukuk and Malaysia's climate leadership: An Islamic finance response to decarbonisation
Unlike conventional green bonds, green sukuk are underpinned by tangible assets, providing a unique layer of risk mitigation and investor confidence. By MUHAMMAD IRWAN ARIFFIN
23 Jun 2025 12:25pm
Illustrative image by Sinar Daily
MALAYSIA has made headlines with its recent announcement of RM43 billion in investment to upgrade the national power grid and facilitate offshore carbon capture and storage (CCS) initiatives.
These efforts, aligned with Malaysia's commitment to achieve net-zero carbon emissions by 2050, mark a pivotal shift in energy and climate policy. Yet, such ambitions come with substantial financial demands.
In navigating this challenge, Malaysia is uniquely positioned to champion a homegrown solution rooted in Islamic economics: the issuance of green sukuk.
Green sukuk are Shariah-compliant bonds earmarked to finance environmentally sustainable projects. They combine ethical investing with Islamic principles, ensuring that proceeds are used exclusively for climate-positive and socially beneficial purposes.
Unlike conventional green bonds, green sukuk are underpinned by tangible assets, providing a unique layer of risk mitigation and investor confidence.
Malaysia has already been a pioneer in this domain. In 2017, it became the first country to issue a sovereign green sukuk to fund renewable energy projects.
Since then, the sukuk market has grown steadily, but it remains underutilised in major public infrastructure and climate finance strategies. The RM43 billion decarbonisation initiative presents an ideal opportunity to reinvigorate this instrument. Illustrative image by Sinar Daily
The benefits are twofold.
First, issuing green sukuk diversifies funding sources and attracts both domestic and international investors seeking ESG-aligned and Shariah-compliant returns. Malaysia can tap into the growing appetite for ethical finance across the Middle East, Europe and Southeast Asia.
Second, green sukuk provide a tangible demonstration of Islamic finance's role in advancing the United Nations Sustainable Development Goals (SDGs), particularly in clean energy (SDG 7), climate action (SDG 13), and sustainable cities (SDG 11).
Furthermore, the alignment between maqasid al-shariah (objectives of Islamic law) and environmental stewardship is evident. Islam promotes the protection of life, wealth and the environment.
In this light, decarbonisation becomes not only an economic imperative but a moral and religious one.
To move forward, policymakers should create incentives for green sukuk issuers, streamline regulatory processes, and strengthen verification frameworks to avoid greenwashing. Public-private partnerships, particularly with Islamic banks and waqf institutions, could further amplify the positive impact of green sukuk.
In a world searching for climate solutions that are both ethical and inclusive, Malaysia has an opportunity to lead. Green sukuk could well be its powerful tool because it is financially sound, spiritually aligned and globally relevant.
Assoc Prof Dr Muhammad Irwan Ariffin is attached to the Department of Economics, Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia. The views expressed in this article are those of the authors and do not necessarily reflect the editorial position of Sinar Daily.
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