Photo: Solar cell tree in a green village in Bali, Indonesia. Rattanamanee Patpong

Islamic Finance

Indonesia must improve communication with investors to better understand demand for green sukuk – finance ministry official

JAKARTA/SINGAPORE - The Indonesian government needs to improve its communications with investors to better understand their needs with regards green sukuk, Dwi Irianti, director of Islamic finance at the ministry of finance, told Salaam Gateway.

The official was responding to Salaam Gateway’s request for clarification about a comment made by Sri Mulyani Indrawati, Indonesia’s finance minister, that the sovereign’s green bonds and sukuk are “not really green”.

The finance minister made the comment at an industry seminar in London on June 25, referring to the fact that only 29 percent of Indonesia’s green bonds were bought by green investors, and the remaining 71 percent were “regular investors”.

Indonesia has so far issued $2 million in green sukuk: $1.25 million in 2018 and $750 million so far this year.

Dwi Irianti said there is still a “missing link” between buyer preference and the underlying projects of the green bonds and sukuk.

However, she said that investment criteria for green bonds and sukuk should not be based on buyers’ needs but instead on the eligible green projects that will benefit from the issuances.

Indonesia’s ministry of finance published last year the country’s green bond and sukuk framework outlining nine eligible green projects, including renewable energy, sustainable transport, green tourism and sustainable agriculture.

Dwi Irianti said that so far, this framework is the only communication with regards the government’s green issuances and that no direct meetings or other channels of communication have been initiated by the sovereign to reach out to green investors.

However, she added, the assessment and rating of Indonesia’s green bond and sukuk framework by Norwegian institute Cicero would have given the market more confidence in the sovereign’s issuances.

Blake Goud, CEO of RFI Foundation, the responsible finance thinktank, told Salaam Gateway that to grow the green bond and sukuk market requires a maintenance of investor trust in ‘additionality’ through transparency and assurance frameworks, while still attracting enough issuers to grow the diversity of the types of issuers.

“This requires balancing the legitimate concerns from issuers about the complexity and possible conflicts between different frameworks, while protecting the integrity of the market by confirming the proper use of proceeds, and measuring impacts from a very diverse range of eligible projects,” said Goud.

“The market is still quite young in its development, so these types of discussions are productive and demonstrate the need to include diverse voices from both developed and emerging markets, as well as green sukuk issuers such as the Indonesian government.”

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