Is Green Sukuk Better than Conventional Green Bonds in achieving UK’s 2050 Net-Zero Emissions Reduction Goal?

Abstract

The goal of carbon neutrality in the UK demands a corresponding financial investment. Research findings indicate that the conventional green bonds alone are insufficient in attaining carbon neutrality throughout the UK. Therefore, it is imperative to explore the augmentation of the green finance market by integrating different financial instruments, such as green Sukuk. This thesis aims to demonstrate the ability of green Sukuk to access markets that are often inaccessible to conventional green bonds.

This study uses a doctrinal and comparative methodology to examine the green Sukuk frameworks and market progress in Malaysia and Indonesia. The objective is to provide a comprehensive plan for the adoption of green Sukuk in the UK. This study investigates the potential of green Sukuk as a viable financing mechanism for facilitating the energy transition in the UK. This paper presents an analysis of Green Sukuk as well as conventional green bonds, focusing on their definition, ethical principles, and environmental duties. Additionally, it highlights the differences between both of these green financial instruments. Prospects and challenges of these green financial instruments will also be evaluated. Furthermore, this paper investigates the effects of green Sukuk in Malaysia and analyses its possible implications for the UKs green financing industry and its ability to meet climate targets.

The research proposes changes to the existing regulations governing the capital market, the establishment of a framework for green Sukuk, the standardisation of the market for green Sukuk, and the implementation of incentives that are attractive to both issuers and investors. The paper provides further suggestions about the involvement of the government and other essential players in establishing favourable market circumstances to facilitate the success of green Sukuk. These suggestions play a crucial role for regulators, issuers, and investors as they ensure that the green Sukuk continues to be a reliable financial instrument that contributes to the growth of the UK green finance industry and the achievement of the country's climate objectives.