The $80 Billion Question: Is Green Sukuk Türkiye’s Answer to Climate Action?

Jun 5

In Islam, protecting the environment is a fundamental duty for all humankind. The transition to clean energy is a tangible manifestation of this commitment to environmental preservation, especially for Muslims. As a country with a Muslim-majority population, Türkiye is striving to reduce carbon emissions as part of its commitment to mitigating the climate crisis. However, one of the main challenges in carrying out this energy transition is its financing mechanism. Without sufficient capital circulation, clean energy projects cannot run optimally.

This is where Islamic finance emerges as an innovative financing mechanism. Green Sukuk offers a strategic alternative to support clean energy project funding in a sustainable and Sharia-compliant manner.

Turkiye’s Clean Energy Financing Needs

Türkiye has set an ambitious target to achieve net-zero emissions by 2053, including a plan to add 120 GW of solar and wind energy capacity by 2035. To achieve this goal, Türkiye is estimated to require $80 billion in investment. However, investment in clean energy development in Türkiye still faces various challenges. One major issue is the presence of economic and financial constraints that can hinder the inflow of foreign investment.

An alternative solution is to leverage local investment from within the country, as well as attract Muslim international investors seeking Sharia-compliant financial instruments. Islamic finance provides various options for growing local investments that can be utilized by the Turkish public. Embracing the concept of “from the people, for the people”, Green Sukuk allows Muslim investors to fund projects that align with Islamic principles, such as clean energy initiatives that promote environmental preservation and sustainability.

What is Green Sukuk?

Sukuk are asset-backed certificates that offer returns based on the performance of the project, rather than through interest-based returns. Green sukuk is an innovation designed to support sustainable finance, climate-resilient growth, and environmentally friendly projects. The rise of Green Sukuk in recent years is not only due to the increasing popularity of sukuk, but also in line with growing investor awareness of ethical and socially responsible investments (ESG).

Green Sukuk has grown rapidly in recent years as investor interest in ethical and socially responsible finance has increased. Moreover, the rising number of energy-themed projects is Muslim-majority countries has contributed to this growth. The success of this instrument heavily depends on the support of financial institutions, government regulations, and public literacy on Islamic finance, and environmental issues.

Green Sukuk in Türkiye

The first Green Sukuk in Türkiye was issued in 2020 by Zorlu Energy through its sustainable sukuk issuance program. In 2022, the Turkish Presidential Finance Office released a Green Sukuk Working Report, revealing that only two Green Sukuk had been successfully issued up to that time. The limited issuance was attributed to several factors: an underdeveloped regulatory framework, lack of collaboration with international institutions, and limited involvement of local banks in supporting Green Sukuk initiatives.

In comparison, Green sukuk in other countries has successfully funded various environmentally friendly projects. For example, Malaysia issued Green Sukuk worth up to RM 1 billion to finance Quantum Solar Park Sdn Bhd, which planned the construction of three 50 MV solar photovoltaic (PV) plants.

The Untapped Potential of Green Sukuk in Türkiye

With a Muslim-majority population and a developing financial market, Türkiye holds strong potential to become a pioneer in Green Sukuk issuance in the region. Its strategic geographical location, situated between the Middle East and Southeast Asia, allows it to uniquely catalyze cross-border collaboration in the burgeoning Islamic finance sectors. This opens up several significant avenues for Turkiye to unlock its vast potential.

Leveraging Domestic Demand and Islamic Ethos
Green sukuk strongly appeals to the eco-consciousness by offering an investment that aligns with Islamic principles of environmental stewardship. It fosters a sense of collective responsibility, allowing Muslim investors to contribute directly to national clean energy goals while earning Sharia-compliant returns.
Attracting Diverse Investor Bases
Türkiye can tap into the deep liquidity pools to establish Islamic finance hubs in the Gulf Cooperation Council (GCC) and Southeast Asia (Malaysia and Indonesia), which are actively seeking Sharia-compliant, ESG-friendly investment opportunities. Green Sukuk adheres to international green bond principle, making it highly attractive to a broader spectrum of conventional investors who prioritise Environmental, Social, and Governance (ESG) factors in their portfolios. International development finance institutions and multilateral banks are increasingly eager to fund green initiatives, offering potential partnerships for expertise, technical assistance, and co-financing for Türkiye Green Sukuk Issuance.
Strengthening Türkiye Positions as a Regional Financial Center
Successful and frequent Green Sukuk issuances would demonstrate Türkiye innovation in the financial market and its unwavering commitment to sustainable development. As Türkiye develops its Green Sukuk market, it can also become a vital center for knowledge transfer, best practices, and capacity building for other emerging economies looking to develop their own sustainable Islamic finance ecosystems.

Challenges in the Implementation

Despite its potential, the implementation of Green Sukuk in Türkiye faces several challenges. Some of the main obstacles include:

The absence of a comprehensive and competitive regulatory framework of Green Sukuk issuance.
Low levels of Islamic financial literacy among the public and local investors.
High risks associated with clean energy projects, including the long payback periods.
Lack of incentives and institutional support from the financial sector.

There’s a need for the Turkish government to develop a robust regulatory framework and provide stimulus to enhance market confidence in Green Sukuk. At the same time, public education on Islamic finance as a visible funding mechanism for clean energy development must be improved. This is a crucial effort to achieve the country’s net-zero target.

Financing Good Deeds with Iman

Green Sukuk is not just a financial instrument, it is a form of social worship that has a tangible impact on the earth, future generations, and ecological balance. Amidst the global climate crisis, Muslims in Türkiye have the opportunity to turn investment into sadaqah jariyah (ongoing charity) by financing projects that deliver goodness in both this life and hereafter.

Through Green Sukuk, the principles of faith (imaan) and trust (amanah) can be embodied in real-world action: financing development that is sustainable, and rooted in Islamic values.

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