Green Sukuk Move From Niche to Core Financing Tool for Gulf and Asian Infrastructure Pipelines

Green sukuk—Sharia‑compliant bonds earmarked for environmentally sustainable projects—are rapidly evolving from a niche product into a core financing tool for infrastructure in the Gulf and Southeast Asia, as regulators, issuers and investors converge on common standards. First launched in 2017 by Malaysia’s Tadau Energy to fund solar projects, the instrument has since gained traction among sovereigns, multilaterals and corporates seeking to align capital‑raising with climate commitments.

By late 2024, Saudi Arabia had emerged as one of the top global issuers of green and sustainability sukuk, with around $3.11 billion placed in the first nine months alone, second only to Indonesia. The UAE followed closely with about $2.25 billion equivalent, led by issuers such as First Abu Dhabi Bank and Dubai Islamic Bank, which channelled proceeds into renewable energy, sustainable infrastructure and low‑carbon projects.​

Countries like Malaysia and Indonesia have built detailed regulatory frameworks and taxonomies, including Malaysia’s Green SRI Sukuk Grant Scheme, to lower issuance costs and provide clarity on eligible assets. Gulf jurisdictions are catching up: regulators and certification bodies in the UAE, Saudi Arabia, Oman, Qatar and Bahrain increasingly rely on green‑sukuk certification and bond‑verification services to ensure that structures meet both Islamic and ESG requirements.

Climate‑transition needs are enormous. Saudi Arabia’s Vision 2060 net‑zero pathway and the UAE’s Net Zero 2050 ambition require hundreds of billions of dollars in power, water, transport and industrial‑decarbonisation investments. Green sukuk provide a culturally and ethically aligned instrument to mobilise global capital for those projects, particularly from Muslim‑majority markets in Asia and from international ESG funds open to Islamic paper.

Investor surveys cited in regional commentary show more than half of institutional investors plan to raise allocations to green and sustainable sukuk over the next three years, driven by regulatory nudges, climate‑risk considerations and diversification goals. Guidance published in 2024 by standard‑setting bodies has started to harmonise documentation and reporting across markets, making it easier for conventional fixed‑income teams to analyse sukuk alongside regular bonds.

Green sukuk remain a small share of total sukuk outstanding but their growth rate outpaces the broader market. Analysts at S&P project overall sukuk issuance to continue climbing through 2026 on the back of lower rates, with sustainable formats likely to capture a rising portion as sovereigns and SOEs embed climate targets into funding strategies.

Challenges linger: inconsistent use‑of‑proceeds definitions, variable post‑issuance impact reporting and limited secondary‑market liquidity in some names. Critics warn that without robust verification and penalties for mislabelling, green sukuk risk the same greenwashing accusations levelled at parts of the conventional ESG bond market.

Still, the direction of travel is clear. As Gulf and Southeast Asian governments push green‑infrastructure investment opportunities lists—from solar parks and transmission lines to waste management and sustainable agriculture—green sukuk are poised to become a standard line item in project‑finance and sovereign‑funding mixes. For investors, that means an expanding universe of credit‑diversified, duration‑varied and often investment‑grade instruments that link financial returns to measurable climate outcomes, deepening the capital‑markets bridge between Kuala Lumpur, Jakarta, Dubai, Riyadh and Doha