Despite the decelerating growth in Islamic finance due to the COVID-19 pandemic and the sharp drop in oil prices, the industry has grown significantly in the past couple of decades and is estimated to reach around US$ 3.5 trillion by 2021. Islamic finance has emerged as an untapped and substantial source of funds for sustainable development in both Muslim and non-Muslim countries. One of the most promising areas for Islamic financing is green sukuk, a new green bond targeting environmentally sustainable projects whilst conforming to Sharia investment principles.
The first green sukuk was issued by Malaysia’s Tadau Energy in 2017 at a value of US$ 59 million to cover a solar power plant. Others followed such as the world’s first sovereign green sukuk of US$ 1.25 billion in Indonesia; Majid Al Futtaim’s first green corporate sukuk in the region in 2019 (US$ 600 million); Saudi-based Islamic Development Bank green sukuk (US$ 1.12 billion) in 2019; and earlier this year Egypt has announced that it will begin issuing green bonds rendering it the first sovereign issuer in the MENA region., Most of these sukuk were oversubscribed reflecting the high demand for green investments.
Other types Islamic finance products include Sustainable and Responsible Investment (SRI) and Sustainable Development Goals (SDGs) sukuk. SRI sukuk are designed to fund socially responsible and humanitarian projects. One example is the first US$ 50 million vaccine sukuk issued in 2019 by the International Finance Facility for Immunization with the Islamic Development Bank to accelerate funding for immunization programmes that save children’s lives in the world’s poorest countries. Other examples include the Khazanah Nasional Berhad SRI Sukuk in Malaysia to improve access to quality education in government schools; the first sustainable sukuk in Turkey issued by Zorlu Enerji through the Industrial Development Bank of Turkey in 2020; and the US$ 1.5 billion first sustainability sukuk by Islamic Development Bank in response to COVID-19. As for SDGs sukuk, in 2018 HSBC Amanah Malaysia was the first financial institution in the world to issue an SDGs sukuk to support seven of the SDGs.
As investor appetite for green and sustainability bonds grows, key considerations for the future of sukuk markets include:
- The need for a legal framework. Many Arab states, such as the UAE, have integrated environmental, social and governance (ESG) measures in their vision and national plans. A key step towards implementing these strategies in the green and sustainable sukuk market would be requiring issuers to disclose their ESG performance. Another way measure to increase the attractiveness of green and sustainable sukuk is for governments to enforce a certain percentage of issuance to be green or socially responsible.
- The need for incentives. Despite the extra cost to issuers, the main driver for green and sustainable sukuk is investor engagement and goodwill. One of the main issues that face green sukuk issuers especially in the GCC area is the lack of tax incentives. It may be worthwhile to follow the example set in Malaysia where the government has started paying for the cost of third-party checks for issuers of SRI green bonds.,
- Finding the right project. According to the President of the Gulf Bond and Sukuk Association, Mr. Michael Grifferty, one of the biggest challenges that the green sukuk market faces is finding projects that are sustainable, measurable, and size- and scope-appropriate for capital market financing. In order to attract more investors into the market, issuers in the GCC need to certify and report on their green and sustainable performance, integrate green policies internally, and adopt an appropriate governance framework. 
- Diversifying into blue sukuk. Continuous issuance of green bonds has driven the Republic of Seychelles to issue the world’s first sovereign blue bond in 2018 at a value of US$ 15 million to protect marine environments and safeguard fisheries. Islamic finance could diversify its product range beyond green and sustainable sukuk to include blue sukuk that address marine and ocean ecosystems.
 Bouahina, A. and Ahmed, S. 19 February 2020. As Islamic finance continues upsurge, new tool helps harness it for developing- country infrastructure. World Bank. https://blogs.worldbank.org/ppps/islamic-finance-continues-upsurge-new-tool-helps-harness-it-developing-country-infrastructure
 Deloitte. 27 November 2015. Corporate Sukuk in Europe: Alternative financing for investment projects. https://www2.deloitte.com/content/dam/Deloitte/xe/Documents/financial-services/me_Islamic-finance_corporate-sukuk-in-europe.pdf
 World Bank. 15 February 2018. https://www.worldbank.org/en/news/video/2018/02/15/green-sukuk—financing-the-future
 Noronha, M. A new shade of green: Sukuk for sustainability. EIU. https://eiuperspectives.economist.com/sustainability/new-shade-green-sukuk-sustainability
 Meskin, M., 03 March 2020. Middle East sovereigns must follow Egypt’s green example. Global Capital. https://www.globalcapital.com/article/b1klms1yd64qxf/middle-east-sovereigns-must-follow-egypts-green-example
 IFFIm, 09 April, 2019. IFFIm issues sukuk to the Islamic Development Bank. International Journal of Management and Applied Research. https://iffim.org/press-releases/iffim-issues-sukuk-islamic-development-bank
 GIFIIP. (2020). Turkey Issues its First Sustainable Sukuk. http://www.gifiip.org/turkey-issues-its-first-sustainable-sukuk/
 IsDB. (2020). Islamic Development Bank issues USD 15 billion debit sustainability sukuk in responsive to covid-19. https://www.isdb.org/news/islamic-development-bank-issues-us-15-billion-debut-sustainability-sukuk-in-response-to-covid-19
 UNDP. (2018). HSBC Amanah Malaysia issues world’s first United National Sustainable Development Goals Sukuk. https://www.undp.org/content/undp/en/home/news-centre/news/2018/HSBC_Amanah_Malaysia_issues_worlds_first_United_Nations_Sustainable_Development_Goals_sukuk.html
 Jivraj, H. (2020). Why so few green sukuk? Sector still faces longstanding challenges, say practitioners. Salaam Gateway. https://salaamgateway.com/story/why-so-few-green-sukuk-sector-still-faces-longstanding-challenges-say-practitioners
 Ibid, 2019
 EIU. (2020). A New Shade of Green Sukuk. https://www.gulfbondsukuk.org/wp-content/uploads/2020/03/A_New_Shade_of_Green_Sukuk.pdf
 World Bank. (2018). Seychelles Launches World’s First Sovereign Blue Bond. https://www.worldbank.org/en/news/press-release/2018/10/29/seychelles-launches-worlds-first-sovereign-blue-bond