Ciaran Bohnacker
Partner
Dubai
Islamic finance has firmly outgrown its historical perception as a regional niche. With global assets estimated at US$5.98tn in 2024, it now represents a significant and expanding segment of international capital markets. This growth is particularly visible in fixed income, where sukuk outstanding has surpassed US$1tn, reflecting sustained issuance across the GCC and Southeast Asia.
Alongside this quantitative expansion, a more important qualitative shift is underway. Islamic finance is increasingly converging with one of the defining trends in modern investing: sustainable finance. This 'green halal' intersection is no longer theoretical but is now a practical and investable proposition.
The case for convergence
At its core, the alignment between Shariah-compliant finance and ESG principles is grounded in shared disciplines. Shariah frameworks inherently promote lower leverage, asset-backing, and restrictions on speculative activity, all of which contribute to financial resilience. Meanwhile, sustainable finance frameworks impose clear requirements on the use of proceeds, governance, reporting, and external review.
Together, these features create a robust governance structure that increasingly appeals to institutional investors. In today’s market, capital allocators are not only seeking returns but also prioritising transparency, credibility, and risk control. In this context, the “Green–Halal” overlay is better understood as enhanced downside governance rather than a marketing narrative.
Market data supports this trajectory. ESG sukuk has grown to an estimated US$58bn outstanding by the end of 2025, with projections suggesting this could exceed US$70bn by 2026, driven by improving standardisation and alignment with widely recognised frameworks such as the ICMA Principles.
Sustainable sukuk as a scalable solution
The convergence of Islamic and sustainable finance finds its most effective expression in sustainable sukuk, which has emerged as the flagship product of this trend.
Structurally, sukuk are well suited to sustainable investing. Unlike conventional bonds, they represent ownership interests in tangible assets, projects, or usufructs, naturally aligning with investments that can be clearly defined and monitored. When combined with established sustainable finance frameworks - covering use of proceeds, project evaluation, management of funds, and ongoing reporting - the result is a product that satisfies both Shariah and ESG requirements.
Importantly, sustainable sukuk expands the investor base. While traditional sukuk markets have been driven primarily by Islamic investors, sustainable sukuk attracts ESG-focused institutions that may otherwise be agnostic to Shariah compliance. This broadened appeal enhances liquidity and demand.
Recent issuance trends reflect this momentum. Green and sustainability sukuk issuance reached approximately US$11.9bn in the first nine months of 2024, representing year-on-year growth of around 18%. Market expectations suggest issuance will continue at a steady pace of US$10–12bn annually, supported by clearer guidance and improving market practices.
Governance over outperformance
For institutional investors, the key attraction of the 'green halal' proposition is not necessarily excess return, but resilience and governance quality.
Evidence from equity markets indicates that portfolios combining strong ESG characteristics with Shariah compliance have demonstrated relative stability during periods of stress, suggesting that layered ethical constraints can provide downside protection. In fixed income, the focus shifts to structural integrity, with risks including greenwashing, inconsistent standards, and evolving interpretations of both ESG and Shariah principles.
As a result, investors place increasing emphasis on:
- Robust structuring
- Independent verification
- Transparent reporting
- Strong legal and covenant frameworks
In this environment, the credibility of the investment framework becomes as important as the underlying asset.
The Channel Islands’ role in enabling growth
As demand for 'green halal' structures increases, the importance of efficient execution and trusted structuring frameworks becomes more pronounced. This is where the Channel Islands, Jersey and Guernsey, offer a clear value proposition.
Both jurisdictions combine stable legal systems, internationally recognised regulatory frameworks, and deep professional expertise in cross-border finance. Their structuring environments are familiar to global institutional investors and provide the flexibility required for complex transactions.
For sukuk and Shariah-compliant structures, Channel Islands vehicles can offer:
- Predictable and investor-friendly corporate frameworks
- Tax-neutral structuring (subject to transaction-specific advice)
- Robust structured finance capabilities, including enforceability of key features such as limited recourse and non-petition provisions
- Efficient management of cross-border capital flows
In a market where both ESG and Islamic investors increasingly prioritise transparency and auditability, these structural advantages are critical.
From convergence to market practice
The convergence of Islamic finance and sustainable finance is evolving rapidly from concept to standard market practice. What began as a natural alignment of principles is now supported by scalable instruments, clearer frameworks, and growing investor participation.
Looking ahead, the trajectory is clear: as global capital continues to prioritise governance, sustainability, and transparency, the 'green -halal' model is well positioned to become an established pillar of international finance.
For the Channel Islands, the opportunity lies in continuing to provide the legal certainty, structuring sophistication, and execution capability that underpin this growth - ensuring that as the market expands, it does so on a foundation of trust and credibility.
