Publication:
Global green bond and sukuk washing: incentivising bad behavior
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Date
2025
SDG:
Abstract
The urgent call to climate action has placed responsibility on all corporate sectors to contribute to carbon neutral and net zero emissions by 2050. An integral enabler to the corporate sector is the financial market. Green bond principles and other green standards have provided guidelines for financing climate-friendly projects referred to as green . The proliferation of green bonds since 2007 (CAGR of 58%) has driven the emerging sector ofgreen sukuk over the last five years as well. The green financing market, however, is incentivized through cheaper funding or lower return requirements, increasing the potential for unscrupulous actors and greenwashing. This qualitative study reviews trends in greenwashing cases, the key drivers to greenwashing, and whether regulatory robustness and more stringent governance would curb greenwashing violations in conventional and Islamic financial markets. We find that developed countries and corporates are taking advantage of weaker oversight and economic vulnerabilities of developing and lower-income countries as a means of arbitrage in the application of green principles. We also find that greenwashing violators suffer little to no significant repercussions when found guilty. Stronger international oversight is recommended, with more diligent green audit processes for corporates claiming green status. Banks that act as lead arrangers for corporate capital raising play a pivotal role in providing this oversight, incentivizing compliant green issuers and penalizing offenders through higher mark-ups. However, regulatory oversight and remedial action need to be significantly more effective and severe penalties implemented to act as a deterrent to curb greenwashing across international markets.
Keywords
Green bond , Greenwash , Green sukuk , ESG
Citation
Mahomed, Z., & Ramadili Mohd, S. M. (2025). Global green bond and sukuk washing: Incentivising bad behavior. In F. Taghizadeh-Hesary, H. M. T. Thaker, M. I. Bhatti, & M. A. M. T. Thaker (Eds.), Islamic finance and sustainability: A research companion (pp. 381-411). Routledge.
Publisher
Routledge