Unlocking Islamic Climate Finance

By Asian Development Bank

This report analyzes how Islamic finance can be scaled up to help build urgently-needed climate-resilient infrastructure in Asia and the Pacific region, and ensure its post-COVID-19 recovery is green, sustainable, and inclusive. It outlines how greening Islamic capital markets and social finance, mobilizing project finance for infrastructure and boosting financial inclusion, can play a key role in funding the climate agenda. It details the 14 ADB developing member countries with majority Muslim populations, assesses the growth of the nearly $3 trillion global Islamic finance market, and explores how its faith-based principles support the transition to a green agenda.

• Language: English
• Publisher: Asian Development Bank
• Release date: Dec 1, 2022
• ISBN: 9789292698393

Book preview

UNLOCKING ISLAMIC CLIMATE FINANCE

NOVEMBER 2022

Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)

© 2022 Asian Development Bank (ADB)

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Some rights reserved. Published in 2022.

ISBN 978-92-9269-838-6 (print); 978-92-9269-839-3 (electronic); 978-92-9269-840-9 (ebook)

Publication Stock No. TCS220511-2

DOI: http://dx.doi.org/10.22617/TCS220511-2

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Notes:

ADB recognizes China as the People’s Republic of China

In this publication, $ refers to United States dollars.

In this publication, tables, figures, and maps without explicit sources are those of the authors.

Cover design by Ross Locsin Laccay

Photos: Steam from deep within the Earth is used to generate electricity at the Lahendong geothermal power plant in Manado, Indonesia; Women’s group packaging coffee in Tunggul Bute village. The coffee production project is financed by Lahat, Geothermal Power Plan in South Sumatra, Indonesia. Phase I constitutes the geothermal resource exploration and drilling phase of project development; Sunny Bangchak solar farm in Chaiyabhum Province, Thailand; Water channel used to irrigate terraced farms in Nepal; Efficient transport is essential to achieve higher levels of economic growth needed for sustainable poverty reduction in Bangladesh; An agricultural field with the Burgos Wind Farm seen in the background; Suriya Athtar, 11, helping his family adopt safety measures to keep them safe during the COVID-19 lockdown in Pakistan; Construction workers wearing face masks while repairing a road in Phnom Penh, Cambodia; The City Government of Puerto Princesa, Philippines maintains nurseries of mangrove seedlings to complement the fisheries management project; Nine turbines in the turbine hall of the Nurek hydropower plant, Tajikistan; Bangladesh power plant; Hundreds of buses are parked at the Mohakhali bus terminal due to strike; Power lines and towers in Bhutan; Construction workers passing through the tunnels in Dagachhu hydropower Development in Bhutan. All photos by ADB.

Contents

Tables, Figures, and Boxes

Foreword

The magnitude of the climate crisis demands innovative ways to scale investment in climate action, including mobilizing new sources of climate finance. At the same time, the coronavirus disease (COVID-19) pandemic has added a new dimension to the climate crisis, reversing economic development gains, and further straining public resources to invest in climate action. Governments in Asia and the Pacific face a major challenge in defining the pathway for their economies to recover from this dual crisis.

This report assesses the potential of Islamic finance to support the climate agenda, and to help countries in the Asia and Pacific region deliver on their Paris Agreement goals. Islamic finance has thrived since its inception in the 1970s and is pegged at almost $3 trillion globally including in certain countries in Asia and the Pacific with significant Muslim populations. By examining the lessons and opportunities of implementing Islamic climate finance across countries in the region, the report proposes alternative pathways and implementation strategies to develop and implement Islamic finance for climate action and a green, resilient, and inclusive post–COVID-19 recovery.

The report recommends a staged approach, detailing four specific channels to target Islamic climate finance development: (i) greening Islamic capital markets, (ii) greening Islamic social finance, (iii) mobilizing Islamic project finance for green infrastructure and (iv) developing green banking services for the unbanked to support financial inclusion. This strategic approach aims to support countries in the region in a way that is tailored to their national context and the structure of their Islamic finance market.

The Asian Development Bank and the Islamic Development Bank share many common developing member countries in Asia and the Pacific, including those with high potential to scale up Islamic climate finance. We are therefore pleased to have collaborated on this study, combining our knowledge and perspectives on the challenges and opportunities of Islamic climate finance. We look forward to opportunities to work together to leverage the great potential of Islamic finance to support climate action and a green, inclusive, and resilient recovery from COVID-19.

WOOCHONG UM

Managing Director General,

OIC, Vice President Knowledge Management and Sustainable Development

Asian Development Bank

DR. MANSUR MUHTAR

Vice President

Islamic Development Bank

Acknowledgments

This report was developed by the Asian Development Bank (ADB) in close collaboration with the Islamic Development Bank (IsDB).

The report was prepared by Salim Refas (consultant, ADB) under the guidance of Kate Hughes (senior climate change specialist, ADB), Esmyra Javier (climate change specialist, ADB), Ahmed Al Qabany (former manager, Climate Change Division, IsDB), and Daouda Ndiaye (lead climate change specialist, IsDB). Valuable inputs were also provided by Olatunji Yusuf