As the ceremonial gong echoed through the trading hall of the Pakistan Stock Exchange (PSX) on the morning of Friday, May 19, 2025, Pakistan marked its entry into an exclusive group of nations by launching its inaugural Rs30 billion Green Sukuk.
The event featured opening remarks by Muhammad Aurangzeb, Federal Finance Minister, Dr Shamshad Akhtar, Chairperson of the PSX, and Irfan Siddiqui, Founding CEO & President of Meezan Bank. Their message was loud and clear, a powerful signal to the market underscoring the importance of Islamic climate finance and the issuance of Green Sukuk rooted in ethical values and environmental sustainability.
The market reacted positively, with the maiden issue oversubscribed by 5.4 times within just two hours, receiving bids exceeding Rs161bn.
The Debt Office at the Ministry of Finance, along with the Joint Financial Advisors for the Sukuk — led by Meezan Bank and the PSX, played a pivotal role in addressing the major challenges of the inaugural issuance.
By tapping into the green Islamic finance market, the government not only diversifies its funding sources but also aligns with its international climate commitments
These included the development of Pakistan’s first sovereign Sustainable Investment Sukuk Framework and its approval by the federal cabinet, fostering market development and awareness for the new concept of Green Sukuk, and conducting sessions and online webinars for the general public and Non-Resident Pakistanis (NRPs) and motivating local financial institutions, asset management companies and environmental, social, and governance (ESG) sensitive investors to bid in the auction.
Pakistan’s entry into the market aligns with the growing international focus on climate-sensitive finance. As of September 2024, the global green bond market has exceeded $3.4 trillion. S&P Global estimates green bond issuance in 2024 will reach a record $622bn, while the London Stock Exchange Group reports that the outstanding ESG Sukuk market has surpassed $50bn this year.
Green Sukuk is a convenient and ethical way to generate liquidity and are widely used by governments to generate local and international funding under a Shariah-compliant mechanism while avoiding interest. These Sukuk are innovations in green and social finance in which proceeds from Sukuk issuance are used to finance environmentally and socially sustainable projects like renewable energy, infrastructure development, or social welfare.
The country’s first sovereign Green Sukuk issuance has positively highlighted Pakistan’s image and role in sustainability and environmental protection efforts, and going forward, this initiative will pave the way for solving various climate-linked problems and generate much-needed funds.
The emergence of Pakistan as a new player in the Green Sukuk market, following the footsteps of Malaysia, Indonesia, Saudi Arabia, UAE, and Turkey, represents a pivotal moment in the nation’s economic and environmental strategy and its alignment to the conversion strategy toward an interest-free financial system.
The inaugural statutory liquidity requirement eligible Ijarah Green Sukuk (GIGS) was launched under the government’s Sustainable Investment (SI) Sukuk Framework, approved by the cabinet in April this year. This framework is designed with the international best practices in view and is aimed at promoting projects in line with Maqasid-e-Shariah (objectives of Shariah) and the United Nations Sustainable Development Goals (SDG).
The Sukuk was floated via PSX and issued through the Pakistan Domestic Sukuk Company Limited (PDSCL), a wholly-owned subsidiary of the Ministry of Finance, using a competitive auction mechanism. This financial product blends Islamic finance principles with modern sustainable investment strategies, offering local and foreign investors an opportunity to contribute to Pakistan’s green development.
This Green Sukuk is a three-year variable rental rate instrument based on the concept of ownership of underlying assets by Sukuk investors and subsequent semi-annual rental income with a minimum investment ticket of Rs5,000 to attract small retail investors.
The auction attracted robust interest from a broad spectrum of investors, including individuals, corporations, financial institutions, and Roshan Digital Account (RDA) holders. Against the initial target of Rs30bn, the bid of over Rs161bn was received at PSX. Given the high demand, the total issue size was increased to Rs31.98 bn The Sukuk was designed to be fully tradable on the PSX, and the transaction was structured in accordance with the Shariah principles approved by the Joint Financial Advisors and Shariah Advisors, including Meezan Bank Limited, Dubai Islamic Bank (Pakistan) Limited, Bank Islami Pakistan Limited, and Bank Alfalah Islamic.
The proceeds from the Sukuk will be used to develop pre-identified green projects with a focus on clean energy and water conservation, in line with the Sustainable Investment Sukuk Framework. These projects include the Garuk Storage Dam (District Kharan), the Naigaj Dam Project (Dadu, Sindh), and the 26MW Shagarthang Hydropower Project in Skardu.
In line with the Madasid-e-Shariah, these projects are expected to improve water resource management, increase renewable energy generation, and bolster climate resilience in underdeveloped regions. The Sukuk is also targeted to meet five UN SDG Goals.
The Ministry of Finance will publish an annual Green Sukuk Report to reinforce transparency and further track environmental impact. The report will provide a) details of allocated proceeds and the projects financed, b) unutilised proceeds and their placements, c) project-specific performance indicators, and d) environmental impacts.
The launch of this Green Sukuk comes at a time when Pakistan faces mounting climate-related challenges and growing public debt. By tapping into the green Islamic finance market, the government not only diversifies its funding sources but also aligns with its international climate commitments, including those under the Paris Agreement.
Pakistan’s first Green Sukuk represents a fusion of Islamic finance and sustainable development. With strong investor participation, rigorous oversight mechanisms, and a clear focus on environmental impact, the Green Sukuk issuance marks the beginning of a new chapter in Pakistan’s capital markets.n
The writer is Founding Director of the Centre for Excellence in Islamic Finance at the Institute of Business Administeration
Published in Dawn, The Business and Finance Weekly, May 26th, 2025
