The government of the United Arab Emirates (UAE) has, in recent years, made it clear that it wants to promote the UAE as a country in which environmental and social issues are prioritised. It has done this by trying to move away from the country’s dependence on hydrocarbons in the form of oil and gas and instead focusing on environmental protection, clean energy and sustainable development. In doing so, the UAE government has published sustainability statements, set lofty green and social goals and launched related projects. 

The targets set by the UAE (and individual emirates within the UAE) in terms of preparing the country’s economy for a post-hydrocarbon era have been ambitious. As part of its economic diversification actions, for example, the UAE has undertaken to increase the ‘clean energy contribution to the total energy mix [of the UAE] from 0.2% in 2014, to 24% [subsequently revised upwards to 27%] by 2021’. In the UAE Energy Strategy 2050, a target is set of cutting carbon dioxide emissions by 70% by 2050 and increasing the use of clean energy to meet 50% of the country’s energy needs by the same year. The Dubai Clean Energy Strategy 2050 similarly sets out the emirate’s aim of transforming Dubai into a global clean energy centre and the city with the world’s smallest carbon footprint by 2050. 

For a country that has, for decades, met its domestic power needs and financed its socio-economic development through the use and export of hydrocarbons, meeting the UAE’s sustainability goals and ambitions will require considerable capital investment. My article ‘The UAE and responsible finance – can responsible finance sukuk help the UAE in fulfilling its sustainability ambitions?’ discusses whether Islamic finance and, in particular, whether responsible finance sukuk, could help the UAE to meet this significant need for funding. 

Responsible finance sukuk are Islamic capital markets instruments that intentionally direct the proceeds generated by the issue of sukuk certificates towards projects with green and/or social objectives. As such, they provide market participants with a financial instrument through which those participants can fulfil the dictates of Islamic law, while also participating in green, social or sustainable economic activity. As global concern for environmental, social and other ethical issues grows, so too has the market for responsible finance sukuk. However, while other centres for Islamic finance (most notably Malaysia) have seen a growing number of responsible finance sukuk issuances amongst domestic issuers, there have been noticeably fewer issuances of these instruments by or on behalf of entities in the UAE. This would not seem to be because of a lack of government enthusiasm for a sustainable economy in the UAE. Instead, it is arguable that UAE authorities have perhaps been too quick to articulate a grand vision of sustainability without first establishing the legislative and guidance infrastructure needed to put that vision into practice in the context of responsible finance. 

Despite this, indications of a nascent responsible finance industry in the UAE are starting to emerge at an industry level. In 2016, for example, at a UN Environment Programme’s Finance Initiative roundtable, eleven UAE-based financial institutions launched the Dubai Declaration of Financial Institutions in the United Arab Emirates on Sustainable Finance under which they confirmed their support for the UAE’s sustainability ambitions. More recently in 2019, the Abu Dhabi financial sector announced its own declaration, the Abu Dhabi Sustainable Finance Declaration. The primary focus of these initiatives has been on conventional responsible finance and sustainable development. Nevertheless, financial market participants and UAE industry bodies have each also expressed an interest in fostering the development of a responsible finance sukuk market in the UAE. 

With this in mind, the issue of a total of USD1.2 billion worth of green sukuk by MAF Sukuk Ltd in May 2019 and October 2019 (the two series together, the ‘MAF Green Sukuk’) is a welcome development in the UAE’s sustainability activities. While the issuer of the MAF Green Sukuk certificates is incorporated in the Cayman Islands, the obligor and guarantor are both companies incorporated in the UAE. Based on Islamic wakalah (or agency) and commodity murabaha (or sales) contracts, the issuer of the MAF Green Sukuk will buy and sell religiously compliant assets in order to fund periodic payments to certificateholders. Concurrently with this, using an amount equivalent to the sukuk issue proceeds, the obligor (Majid Al Futtaim Properties LLC) will invest in eligible green projects. Based on the Majid Al Futtaim group’s Green Finance Framework, these eligible green projects can include projects in the green buildings, renewable energy, sustainable water management and energy efficiency categories (although in its Green Sukuk Report 2020, Majid Al Futtaim confirmed that the total issue proceeds had in fact been invested only in green building projects in the UAE, Egypt, Lebanon and Oman). 

Mobilising private sector finance through responsible financing activities will be critical in helping the UAE government to meet its extensive sustainability targets. The two series of MAF Green Sukuk certificates were, therefore, significant as the first issuances of responsible finance sukuk on behalf of a UAE corporate. While these issuances took place against a backdrop of federal and emirate-level initiatives to encourage and promote sustainability in the UAE, to date the UAE’s domestic responsible finance sukuk market has been somewhat slow to develop. With the precedent set by the MAF Green Sukuk and a wider increase in interest in responsible financing instruments in the context of Covid-19, now may be the beginning of a more vibrant responsible finance sukuk market in the UAE. These capital markets instruments could be used to draw in investment from both Islamic and conventional responsible finance investors. By directing that investment towards projects with specified societal purposes, responsible finance sukuk align squarely with the UAE’s broader sustainability ambitions. In this way, these instruments could form part of a broader industry-led engagement with sustainability in the UAE. 

Dr Edana Richardson is a Lecturer / Assistant Professor in Law at Maynooth University and lectures on Islamic finance law, capital markets law, and company law.