Qatar’s financial development plans increasingly highlight the importance of innovation when it comes to deepening and widening the market. As part of this approach, the country is looking at new debt capital market instruments: green bonds and sukuk (Islamic bonds). Global demand for these products is growing, as corporations and governments look for effective ways to achieve their sustainable finance goals.
Government-backed initiatives and regulatory frameworks are expected to drive further adoption. This trend holds in conventional and Islamic spaces, with Qatar’s Islamic financial sector being positioned as a leader in sharia-compliant bonds designed to fund environmentally sustainable projects.
Global Impact
Current interest in green fixed income and debt instruments stems from the heightened awareness of – and sense of urgency around – the global climate crisis. A series of international conferences and agreements, beginning with the 1992 UN Framework Convention on Climate Change (UNFCCC), have prompted countries, institutions, organisations and corporations worldwide to attempt to tackle the crisis by setting specific environmental sustainability goals. These goals are often applied via a series of nationally determined contributions in alignment with the UN Sustainable Development Goals.
The Muslim world made its own declaration on this crucial issue with the 2015 Islamic Declaration on Global Climate Change. This declaration calls on corporations, finance and business to “assist in the divestment from the fossil fuel-driven economy and the scaling up of renewable energy and other ecological alternatives”.
The Islamic financial sector responded swiftly. Islamic financial institutions have established their own sustainability goals and provided sharia-compliant instruments and products that align with global efforts to combat climate change. These actions have led to the emergence of green sukuk, mirroring the emergence of green bonds in the conventional fixed-income market.
Both of these instruments are designed to support climate-related or environmental projects. These projects can include renewable energy, environmentally sustainable agricultural practices, clean transport, fuel efficiency schemes and carbon capture projects. Companies that invest in green sukuk or bonds can support the development of projects in these areas, aiding in the larger battle against climate change and meeting their sustainability targets. Such targets may involve businesses offsetting their emissions by supporting green projects elsewhere, provided they also meet sustainability standards and criteria.
Green Sukuk
Green sukuk instruments offer investors an opportunity to finance environmentally sustainable projects while adhering to sharia principles. These vehicles enable participants in the expanding Islamic finance sector to contribute to energy transition initiatives in a manner consistent with their religious beliefs. Sukuk are structured differently from green bonds, which potentially provides advantages. With conventional bonds, the investor loans money to a borrower for a set period at a certain rate of interest, payable at regular intervals. With sukuk, however, holders gain ownership of the project for a certain time, with the profits or losses of the project then distributed among them according to a pre-agreed formula.
Thus, sukuk are asset backed, with green sukuk requiring that the asset meet environmental sustainability criteria. The tangible nature of the asset ensures that it generates real-world environmental benefits – something that is sometimes not as self-evident with green bonds. In addition, the fact that sukuk owners are initially project owners also creates a strong chain of accountability and transparency.
Milestones
In 2015 the Clean Energy Business Council, Climate Bonds Initiative and Gulf Bond and Sukuk Association established the joint Green Sukuk Working Party to develop these sharia-compliant instruments. Subsequently, the first-ever green sukuk was issued in 2017 by Malaysian company Tadau Energy – a $59m sukuk raised to finance a 50 megawatt solar photovoltaic plant. The first green sukuk issued in the GCC came in 2019 with Dubai’s Majid Al Futtaim’s $600m, 10-year fixed rate trust certificates. The proceeds were assigned for use by Majid Al Futtaim’s Green Finance Framework for projects in areas including renewable energy, energy efficiency, sustainable water management and/or green buildings.
Qatar’s first green bond was issued in 2020 by Qatar National Bank and the first green sukuk was issued by a Qatari corporate in January 2024. The issuer of the latter was Qatar International Islamic Bank (QIIB), with a $500m certificate listed on the London Stock Exchange’s Sustainable Bond Market. The issuance was more than eight times oversubscribed, demonstrating the degree of demand for green sukuk. The 2024 issuance was part of a $2bn trust certificate issuance programme established by QIIB.
Legislation
At the same time, Qatar has emerged as a regional leader in advancing the regulatory framework for green sukuk. This development aligns with the country’s broader strategic objectives, emphasising the expansion and deepening of capital markets as integral to national progress. Central to this vision is the recognition that sustainable development is essential to long-term societal advancement — an idea embedded in the Qatar National Vision (QNV) 2030. The framework, initially launched in 2008, has environmental development as one of its four foundational pillars.
In line with QNV 2030 objectives, the authorities established a $75bn investment pipeline to advance sustainable development, with a focus on renewable energy, environmental preservation and social inclusion. A prominent example of this commitment was the construction of stadia for the 2022 FIFA World Cup, all of which received certification under the Global Sustainability Assessment System for their energy-efficient designs and sustainable features. These efforts have elevated green building benchmarks within Qatar and contributed to shaping global sustainability standards.
QNV 2030 is operationalised through a series of shorter-term, sector-specific and institutional strategies. The most recent of these is the Third National Development Strategy 2024-30. This is complemented by the Third Financial Sector Strategy (FSS-3), which also spans 2024-30 and aligns with the Qatar Central Bank’s overall market development plan for the same period. The central bank serves as the primary regulator of Qatar’s financial services ecosystem.
Under the FSS-3, capital markets are identified as one of four strategic pillars, with Islamic finance development integrated as a cross-cutting priority. The framework places explicit emphasis on fostering innovative Islamic finance instruments, including measures to strengthen the yield curve, deepen the debt capital market and boost secondary trading in fixed income. It also advocates the issuance of advanced ESG and sukuk products. Complementing these efforts, Qatar Financial Centre (QFC) is advancing its own development agenda, with a focus on expanding sukuk.
In line with this agenda, QFC launched the GCC’s first sustainable sukuk and bond framework in March 2022. The framework is aligned with the International Capital Markets Association Green Bond Principles, Social Bond Principles and Sustainable Bond Guidelines.
Sustainability
A related development in recent times has been the evolution of environmental, social and governance (ESG) bonds and sukuk. Green and ESG bonds and sukuk target environmentally focused projects and investments; however, ESG instruments adopt a broader lens, assessing corporate sustainability practices and governance structures within a wider societal context. ESG sukuk apply these principles within the Islamic finance framework and are gaining traction, particularly in emerging markets.
In October 2024 US credit rating agency Fitch projected that global ESG sukuk issuance would surpass $50bn by the end of 2025, positioning it as a key funding instrument in emerging markets. While ESG sukuk represented just 5% of sukuk outstanding by the end of the third quarter of 2024, this marked a 34% year-on-year increase to $44.6bn. In the GCC, ESG sukuk accounted for 42% of all ESG-related debt over the same period.
Nonetheless, challenges persist, including the need for greater standardisation – both for ESG and green finance products and in terms of sharia compliance. Moreover, the global ESG momentum has faced headwinds over the past two years amid shifting political dynamics in developed markets. Broader uncertainties in global trade and economic growth also weigh on demand for debt capital market instruments.
Moving Forwards
Despite these pressures, Qatar remains well positioned to advance its ESG and green sukuk offerings, supported by robust regulatory frameworks and well-capitalised institutions. With debt issuances expected to support upcoming fiscal plans, and with sukuk market development aligned with the country’s long-term environmental, social and economic goals, the sector is poised for continued expansion.
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