A High Level Working Group has been launched by Finance Minister Sri Mulyani and the UK government and institutions, to drive investment into green and sustainable activities.
The UK Islamic Finance Council (UKIFC), The UK’s Treasury department (known as Her Majesty’s Treasury – HMT for short), Ministry of Finance in the Republic of Indonesia Ministry, Islamic Development Bank, London Stock Exchange Group and the Global Ethical Finance Initiative (GEFI) have come together as founding partners to launch a High Level Working Group (HLWG) on Green Sukuk.
Green Sukuk is a method of raising money. Green Sukuk is a type of bond that either governments or private companies can use to raise money in order to invest in green activities of all kinds.
The High Level Working Group (HLWG) on Green Sukuk launched at COP26 has three important objectives. One, to increase the number of Green Sukuks being issued by raising awareness. Two, to encourage better alignment of the Islamic Finance industry with the global green and sustainability financial movement. Three, to address specific supply and demand side challenges Green Sukuk faces.
Meeting all three objectives will help make sure that the power of Islamic finance is brought to bear to make progress on environment and sustainability. Tapping Islamic finance will help countries achieve their emission reductions/net zero targets, and their Sustainable Development Goals (SDGs).
Indonesia is a global leader on this effort. Indonesia was the first government in the world to issue a Green Sukuk, the largest Muslim majority population in the world, and host of the G20 in 2022. Indonesia has the leadership and platform needed to promote this and make Green Sukuks a success – as Sri Mulyani is the Co-Chair of the Coalition of Finance Ministers for Climate Action. Indonesia and the UK partnering on this shows the strength and depth of trust between the countries. UK is a great country for Indonesia to partner with, as one of the leading financial centres in the world.
The 3-year initiative will direct investment to reduce greenhouse gas emissions in the world’s regions in most need of investment.
The announcement follows work of the Global Islamic Finance and UN SDGs Taskforce and a recent report “Innovation in Islamic Finance: Green Sukuk for SDGs” commissioned by UNDP Indonesia in which the UKIFC estimated that an additional US$30+ billion of capital towards the SDGs can be raised by 2025 through green and sustainability sukuk. This is money that would be raised for green and sustainable activities, if the right mechanism was in place.
To unlock this finance the HLWG has been launched to coordinate international efforts. The report shows how a green and sustainability sukuk can be a viable financial instrument attracting billions of dollars of capital for green projects that support the global fight against climate change.
Islamic finance is not limited to Muslim countries and has the potential to support the delivery of the more ambitious Nationally Determined Contributions that countries will volunteer at COP26. This will be particularly attractive to the Organisation of Islamic Cooperation (OIC) whose 57 member states represent over 1.82 billion people (24% of the total world population) and include a number of low-income countries that are politically or culturally marginalised.
The HWLG will be a focused, high-profile group of global stakeholders that will be led by the founding partners. The UKIFC together with Global Ethical Finance Initiative will act as Secretariat.
The HLWG was launched during the UKIFC’s Islamic Finance COP26 Programme that was held on the banks of Loch Lomond in Scotland. GEFI’s Path to COP26 campaign enabled Islamic finance experts from across the globe to come together to demonstrate the important role Islamic finance can play in supporting climate action in the global south and beyond.
Minister of Finance of Republic of Indonesia Sri Mulyani Indrawati said: “As a pioneer in the issuance of international Green Sukuk, the Ministry of Finance of Indonesia is honoured to be able to work together with Her Majesty’s Treasury, the UK Islamic Finance Council, the Islamic Development Bank, the London Stock Exchange Group and the Global Ethical Finance Initiative to further develop Green Sukuk market.
The initiative aims to promote Green Sukuk as an alternative financing instrument, which combines two principles that are very much aligned, to a wider audience globally, and enabling issuers not to only tap Sukuk investors but also Socially Responsible Investment (SRI) investors across the world.
The Republic of Indonesia is a keen promoter of the asset class and committed to further enrich and develop Green Sukuk, as seen by our consistent effort in issuing the instrument annually, and therefore, very excited to participate in this collaboration. We hope to be able to share our experiences and provide valuable precedents to the group, whilst at the same time learn and apply best practices or initiatives for the improvement of Green Sukuk.
With the world recovering from global pandemic, it provides a momentum for nations, multilateral institutions, corporates across the world to work together to grow sustainably for future generations. We owe the sustainability and future of this planet to our children”.
British Ambassador to Indonesia and Timor Leste Owen Jenkins said: “It is great to see the UK and Indonesia working together on this. There is huge demand for green investment and finance. Investors recognise our future must be green – they know that green assets will be more secure and retain more value. Through this Green Sukuk we hope to make it easier and more attractive for Muslim investors to go green.
The Islamic Finance Council UK (UKIFC) is a specialist, not-for-profit, advisory and developmental body focused on promoting and enhancing the global Islamic and ethical finance industry. It has helped six countries develop enabling regulatory frameworks for Islamic finance, enhancing financial inclusion to over 15 million people, established the award-winning Ethical Finance Round Table series running since 2010, launched the world’s first joint venture between Islamic finance and the Church of Scotland, and delivered development sessions to over 500 Islamic scholars across the globe. In 2020 the UKIFC, alongside the British Government’s Treasury department, established the Islamic Finance and Sustainable Development Goals (SGDs) taskforce, which will be anchored in London.
UKIFC – https://www.ukifc.com/
SDG Taskforce - https://www.ukifc.com/sdg/