How to Ascertain the Shariah Compliance on the Islamic Financial Product? A Study on Green Sukuk

Abstract

Amid growing global concerns about sustainability, Islamic finance is emerging as a pivotal player in addressing environmental challenges through Shariah-compliant financial products. Green Sukuk, an innovative Islamic financial instrument, blends ethical investment principles with the urgent need to fund environmentally friendly projects. This article studies the mechanisms to ascertain Shariah compliance in Green Sukuk, exploring their alignment with Islamic jurisprudence and sustainability goals. The research addresses two critical questions: (1) What are the key frameworks and criteria for ensuring Shariah compliance in Green Sukuk? (2) How does adherence to Shariah principles influence investor trust and market acceptance of Green Sukuk? Employing a qualitative methodology through in-depth literature review analyses, the study synthesises insights from case studies, regulatory frameworks, and academic discussions. Findings reveal that Green Sukuk’s success depends on stringent compliance with Islamic principles such as riba (interest) prohibition, gharar (uncertainty) reduction, and ethical investment mandates. Moreover, robust governance structures and stakeholder transparency significantly enhance their credibility and appeal. The study highlights challenges such as the absence of global standardisation for green projects, regulatory discrepancies, and limited data on performance benchmarks. The article advocates for the integration of advanced technologies, like blockchain, to ensure compliance and improve transparency. It also underscores the importance of international collaborations to standardise criteria and promote broader adoption. By providing actionable insights, this research contributes to the evolving discourse on Islamic finance, offering a roadmap to align Shariah principles with global sustainability objectives.