As temperatures rise and renewable energy gains momentum as a key resource in combating climate change, the Pakistani government is taking significant steps towards generating as much green energy as possible. In response to the current need of the hour, the nation is taking an important step towards sustainable financing by issuing green sukuk bonds worth Rs. 52 billion, with a primary focus on three sustainable energy projects. This significant decision reflects the growing necessity of reaching climate goals while also offering a Shariah-compliant investment opportunity for local and global investors.
Expecting to maintain the government’s broader strategy of promoting ethical and Islamic financial systems in a way that can fund energy infrastructure, especially during growing budget limitations and expanding climate concerns, the green sukuk bonds aspire to the greater goal of averting every such related crisis.
Delving into Green Sukuk Bonds
So this raises the question: What are green sukuk bonds? Green sukuk bonds are Islamic financial certificates that are similar to regulatory bonds. However, instead of getting interest, investors receive direct profit from revenue-generating green projects. Since these bonds are a part of Shariah-compliant, they are tied to tangible assets, ensuring transparency and ethical financial practices. The sukuk bonds in Pakistan will be used solely to fund projects that will benefit the country environmentally, all the while supporting social outcomes as well. That includes renewable energy, water shortage, and sustainable infrastructure.
Financing Projects
The Rs. 52 billion raised through green sukuk bonds will support the completion of three ongoing clean energy and water infrastructure projects that previously experienced delays and cost overruns due to inflation and fiscal limitations. These projects include the Gurak Storage Dam in Kharan District, Balochistan, with an updated cost of Rs 28 billion and a remaining requirement of Rs 5 billion.
The goal for this is to target water shortage and electricity generation. The second project is the Naigaj Dam in Sindh, which was first approved in 2005. With a current updated cost of Rs. 47.7 billion, additional funding of Rs. 22 billion is still required to promote water supply for agricultural and rural development. Finally, the third project will be in Skardu, Gilgit Baltistan, named the Shagarthang Hydropower Project. The capacity of this project will be 26 MW with a total cost of Rs. 32 billion and a requirement of Rs. 25 billion. The key benefit here is to ensure renewable power for Skardu as well as its surrounding regions.
These initiatives align with the Pakistani government’s National Climate Change Policy and Sustainable Development Goals (SDGs) while also representing an opportunity to address energy shortages and rural development through clean, locally sourced energy.
Sustainable Investment Sukuk Framework In a Nutshell
For the management of the framework, the government has approved a Sustainable Investment Sukuk Framework. This is to ensure that all projects funded through green sukuk bonds adhere to the practices nationally and internationally, according to the policy goals.
Key features of this framework include the evaluation of projects on environmental, social, and economic grounds and mandatory alignment with the climate and sustainability policies. The projects will be overseen by a Joint Evaluation Committee composed of members from the Ministry of Finance, the Ministry of Planning, the Ministry of Climate Change, the State Bank of Pakistan, and the Ministry of Economic Affairs. This committee will assess and approve projects eligible for funding and ensure that there is transparency and accountability throughout the investment process.
Benefits of Green Sukuk Bonds
With sukuk bonds, there are multiple advantages for Pakistan, especially when considering the current fiscal climate. Here are some key ways green sukuk bonds will benefit the country. Sukok bonds can:
- Be a viable alternative to traditional debt: Sukuk bonds can minimize reliance on external loans and interest-based instruments.
- Promote climate-friendly development: it prioritizes green energy and environmental sustainability.
- Attract ethical investment: it appeals to Islamic finance markets and ESG-focused investors.
- Boost investor confidence: Demonstrates fiscal innovation and commitment to long-term development goals.
- Support inclusivity growth: Funds will benefit underserved and remote regions.
These bonds will be particularly attractive to institutional investors who want to invest in Pakistan’s transition to renewable energy.
Looking into the future of Green Sukuk Bonds in Pakistan
The first phase of fundraising aims to generate Rs. 30 billion, with the remaining amount to be raised in other payment sections. This development marks a pivotal shift in Pakistan’s approach to financing infrastructure, signaling a move toward sustainable, ethical, and economically viable funding mechanisms. A decision to prioritize sukuk bonds is more than just a financial decision for the country; it reflects a broader vision of maintaining economic growth, all the while promoting environmental stewardship. As the country faces climate vulnerabilities, financial decisions like this become the cornerstone of a prosperous future for the country and beyond.
