In its report, “The Potential Growth and Future Trends of Green Sukuk as a Tool for Sustainable Financing,” the United Nations Development Programme (UNDP) highlights Kuwait Finance House (KFH) Group, through its Turkiye operations, as a key contributor to the development of green and thematic sukuk markets, reflecting its role in in advancing this segment of the market.

The first-ever global Tier-2 Sustainability Sukuk issued by an Islamic bank

The report spotlighted the success of KFH-Turkey, in issuing a global Tier-2 Sustainability Sukuk, which represents the first-ever global sustainability-linked sukuk ever issued by an Islamic bank. The issuance drew robust international interest, reaching an oversubscription of 12 times. KFH-Turkey allocated a substantial portion of the proceeds toward Shariah-compliant assets, specifically targeting the financing of green and social initiatives.

Additionally, it mentioned the successful sustainability endeavors of KFH-Turkey, which is driven around its mission “We grow with our values”. In this regard, the bank adopts sustainability for its practices and embraces an inclusive approach comprising all its stakeholders.

Innovative green finance instruments

The report highlights KFH-Turkey’s experience in green sukuk as an illustration of evolving practice in the market. This milestone reflects KFH Group's leadership in pioneering innovative, Shariah-compliant green finance solutions.

It also indicated that the KFH-Turkey experience once again confirms that Islamic finance is capable of leading sustainable finance globally, not only within traditional Islamic markets, and that strong institutional commitment to sustainability facilitates the attraction of international investors.

The UNDP report highlights the expanding role of Islamic finance and Green Sukuk as innovative tools for financing sustainable development and addressing global environmental challenges-including climate change and biodiversity loss. It notes that while developing countries require annual investments of USD 5 to USD 7 trillion to achieve the SDGs, they face a persistent shortfall of over USD 2.5 trillion. Consequently, sustainable finance instruments, particularly Green Sukuk, have become essential to bridge this funding gap.

The report also indicated that Green Sukuk emerged as Shariah-compliant key instruments whose proceeds are used exclusively to finance projects with positive environmental impact, such as renewable energy (solar, wind, and hydropower), energy efficiency, sustainable transportation, in addition to water and waste management.

The Role of Green Sukuk in expanding investors pool

The report also addressed the role of Green Sukuk in expanding the investor pool to include sustainability-focused investors alongside traditional investors, as well as their importance in enabling governments and corporates to finance climate-related projects without compromising Shariah principles.

The report also revealed the development of the Green Sukuk market on the global front, noting that the landmark moment for Green Sukuk occurred in 2017. Despite the global economic slowdown in 2022, the Green Sukuk market resumed growth in 2023. However, Green Sukuk still represents a small share of the overall global bonds and Sustainable Sukuk markets, indicating substantial potential for growth.

It is worth noting that “The Potential Growth and Future Trends of Green Sukuk as a Tool for Sustainable Financing” report is issued by the UNDP Istanbul International Center for Private Sector Development, alongside the UNDP Kuwait Country Office and KFH. The report aims to shed light on the emergence, market dynamics, and regulatory frameworks of Green Sukuk, offering a comprehensive guide to leveraging this instrument as a pillar of sustainable finance.