Pakistan Launches Landmark Green Sukuk, Oversubscribed by 5.4 Times
Pakistan has officially entered the green finance arena with the prosperous launch of its inaugural Green Sukuk on Friday, May 19, 2025. The issuance, valued at Rs30 billion (approximately $109 million USD), was met with overwhelming investor demand, signaling strong confidence in the nation’s commitment to sustainable growth and Islamic finance principles. The Green sukuk is a Shariah-compliant bond designed to fund environmentally friendly projects.
Overwhelming Market Response
The Pakistan Stock exchange (PSX) witnessed a momentous event as the green Sukuk was launched, marked by speeches from key figures including Federal Finance Minister Muhammad Aurangzeb and PSX Chairperson Dr. Shamshad Akhtar. Their remarks emphasized the crucial role of Islamic climate finance in Pakistan’s economic future. The market’s reaction was swift and positive, with the issue being oversubscribed by 5.4 times within a mere two hours, accumulating bids exceeding Rs161 billion.
This strong demand allowed the government to increase the total issue size to Rs31.98 billion.This reflects the robust appetite for sustainable investment opportunities within Pakistan and internationally.
Key Players and Framework Development
The Debt Office at the Ministry of Finance, in collaboration with Joint Financial Advisors led by Meezan Bank and the PSX, played a pivotal role in navigating the complexities of this initial issuance.This included establishing Pakistan’s first sovereign Sustainable Investment Sukuk Framework, which received federal cabinet approval. They also focused on boosting market understanding of Green Sukuk through public sessions, online webinars targeting Non-Resident Pakistanis (NRPs), and outreach to local financial institutions and ESG-conscious investors.
did You Know? Sukuk, derived from the Arabic word for “certificate,” represents ownership in an asset or project, unlike conventional bonds which represent debt. This aligns with Islamic finance principles prohibiting interest-based lending.
Global Context and Alignment
Pakistan’s entry into the Green Sukuk market aligns with a global surge in climate-sensitive finance. As of late 2024, the global green bond market exceeded $3.4 trillion, with projections estimating a record $622 billion in green bond issuance for 2024 alone, according to S&P Global. The London Stock Exchange Group reports the outstanding ESG Sukuk market surpassed $50 billion in 2024. This places Pakistan alongside nations like Malaysia, Indonesia, Saudi Arabia, UAE, and Turkey in leveraging Islamic finance for environmental sustainability.
What is a Green Sukuk?
Green Sukuk offers an ethical avenue for generating liquidity, enabling governments to secure both local and international funding through Shariah-compliant mechanisms. These instruments channel funds towards environmentally and socially responsible projects, such as renewable energy initiatives, sustainable infrastructure development, and social welfare programs. They facilitate funding while adhering to Islamic finance principles.
Projected Impact and Use of Proceeds
The funds raised through this Green Sukuk issuance are earmarked for specific green projects,primarily focusing on clean energy and water conservation initiatives aligned with the Sustainable Investment Sukuk Framework. Key projects include the Garuk Storage dam in District Kharan, the Naigaj dam Project in Dadu (Sindh), and the 26MW Shagarthang Hydropower Project in Skardu.These projects aim to enhance water resource management, increase renewable energy generation, and improve climate resilience in underserved areas.
The initiative is also designed to contribute towards achieving five United Nations Sustainable Development Goals (SDGs).
Clarity and Reporting
The Ministry of Finance will publish an annual Green Sukuk Report to ensure transparency and track the environmental impact of funded projects. The report will detail the allocation of proceeds, the projects financed, any unutilized funds and their placement, project-specific performance indicators, and complete environmental impact assessments. This ongoing reporting fosters accountability and builds investor trust.
Pro Tip: Investors can consult the annual Green Sukuk Report to assess the environmental and social impact of their investment, holding the government accountable for its sustainability commitments.
Pakistan’s Strategic Move
the launch of Pakistan’s first Green Sukuk arrives as the nation confronts escalating climate challenges and growing public debt.By accessing the green Islamic finance market, the government not only diversifies its funding sources but also reinforces its dedication to international climate agreements, including the Paris agreement targets. This dual approach strengthens Pakistan’s financial position while advancing its environmental goals.
Sukuk Details
The inaugural statutory liquidity requirement eligible Ijarah green Sukuk (GIGS) operates under the government’s Sustainable Investment (SI) Sukuk Framework. This framework aligns with Maqasid-e-Shariah (objectives of Shariah) and the United Nations Sustainable Development Goals (SDG). The Sukuk was offered via the PSX and issued through the Pakistan Domestic Sukuk Company Limited (PDSCL),a subsidiary of the Ministry of finance.
This instrument is a three-year variable rental rate product based on the concept of ownership of underlying assets by Sukuk investors and subsequent semi-annual rental income and a minimum investment of Rs5,000 appealing to retail investors.
| Feature | Description |
|---|---|
| Issuer | Pakistan Domestic Sukuk Company Limited (PDSCL) |
| Tenor | 3 years |
| Structure | Ijarah (Lease-based) |
| minimum Investment | Rs 5,000 |
| Purpose | Funding Green Projects |
Shariah compliance
The transaction adhered to Shariah principles, certified by Joint Financial Advisors and Shariah Advisors, including Meezan Bank Limited, dubai Islamic Bank (Pakistan) limited, Bank Islami Pakistan limited, and Bank Alfalah Islamic. This ensures the Sukuk aligns with Islamic finance standards.
Context & Evergreen Insights
Green Sukuk represent a growing trend in Islamic finance, blending ethical investment principles with the urgent need for sustainable development. Unlike conventional bonds, Sukuk offer a Shariah-compliant choice, rooted in asset ownership and profit-sharing, rather than interest-based lending. This makes them particularly appealing to investors seeking both financial returns and social impact.
The success of Pakistan’s inaugural Green Sukuk underscores the potential for Islamic finance to play a important role in addressing climate change and promoting sustainable economic growth. As global awareness of environmental issues increases, Green Sukuk are likely to become an increasingly vital tool for governments and corporations seeking to finance green projects and attract socially responsible investment.
Compared to traditional project finance, Green Sukuk offer enhanced transparency and accountability. The requirement for detailed reporting on project performance and environmental impact ensures that funds are used effectively and that investors can track the real-world benefits of their investments. This transparency is vital for building trust and encouraging further investment in sustainable development initiatives.
Frequently Asked Questions
- What is a Green Sukuk? A Green Sukuk is a Shariah-compliant financial instrument used to raise funds for environmentally friendly and sustainable projects. It adheres to Islamic finance principles while promoting green initiatives.
- How does a Green Sukuk differ from a conventional bond? Unlike conventional bonds that are debt-based and involve interest,a Green Sukuk represents ownership in an asset or project and provides returns through profit-sharing or rental income,aligning with Islamic finance principles.
- What types of projects are funded by Green Sukuk? Green Sukuk typically fund projects focused on renewable energy, sustainable infrastructure, water conservation, and other environmentally beneficial initiatives.
- What are the benefits of investing in Green Sukuk? Investing in Green Sukuk allows investors to support sustainable development, align their investments with ethical values, and potentially receive competitive financial returns while contributing to a greener future.
- How transparent is the Green sukuk process? Green Sukuk issuances frequently enough involve detailed reporting on project performance and environmental impact,providing investors with transparency and accountability regarding the use of funds.
- Which countries are active in the Green Sukuk market? Malaysia, Indonesia, Saudi Arabia, the UAE, Turkey, and now pakistan, are among the countries actively participating in the Green Sukuk market.
Looking Ahead
With strong investor participation,rigorous oversight mechanisms,and a clear focus on environmental impact,Pakistan’s Green Sukuk issuance signals a new chapter in the nation’s capital markets. It also underscores Pakistan’s commitment to a sustainable and resilient future. What are your thoughts on Pakistan’s entry into the green sukuk market? How can other countries leverage Islamic finance for sustainable development?
Share your thoughts and questions in the comments below!
