Do you view the development of a dedicated regulatory framework as integral to the growth and success of the ESG sukuk market in your jurisdiction?
A dedicated regulatory framework is a key building block for the growth and success of Islamic green finance as well as the ESG sukuk market. The framework would also be a key driver in bridging Islamic finance and the green industry.
Developing a regulatory framework would be beneficial as it would improve standardisation in both the issuance and reporting processes. This would ensure consistency across issuances, proper standards being met, and ease of comparability for investors as well as other stakeholders in the transaction. A green bond/sukuk framework emphasizes the use and management of proceeds, reporting processes, and external party review, which are among the processes that support the transparency and accountability of ESG sukuk issuance. For investors, disclosure is among the areas of major concern, and may include investment screening and reporting.
At the regulatory level, it is important to encourage more green and sustainability sukuk issuances by means of incentives. In Indonesia, for example, the OJK released its Board of Commissioners Decree in 2018, which provided a 25% discount for first-time issuers who registered their green bond transactions in the capital market. Similarly, the Indonesia Stock Exchange’s (IDX) Board of Directors Decree of 2020 provided a 50% discount on the listing fee for green bonds.
What is your approach to streamlining the issuance process and standardization of the taxonomy for ESG sukuk?
The OJK, as a regulator, has released the Indonesia Green Taxonomy, which can be used as a reference for not only onshore capital markets but also wider stakeholders.
Intensive consultation and discussion with the OJK and green advisers would be necessary for corporates issuing green bonds/sukuk to ensure that the whole process complies with the standard. The Ministry of Finance is also open for discussion with corporates who would like to hear the experience and knowledge of how the government sets the green framework and issues green instruments.
What types of incentives would make issuing ESG sukuk more conducive for issuers?
The OJK has several initiatives on incentives for issuers of green financial instruments as per Regulation No. 60/POJK.04/2017. This regulation states that incentive types may include capacity-building, sustainable finance awards, and other incentives.
Technical assistance and/or financial incentives in preparing green or ESG instruments would further promote green or ESG issuance, such as the 25% discount offered to first-time issuers who registered their green bond transactions in the capital market under the OJK’s Board of Commissioners Decree of 2018.