ESG adjustment in country risk premium in sovereign sukuk

Salman Ahmed Shaikh

Chapter 7 in Islamic Finance and the Pursuit of Sustainable Prosperity, 2025, pp 134-160 from Edward Elgar Publishing

Abstract: ESG principles are in congruence with Maqasid al-Shariah. ESG focused activities and strategies can help in achieving Maqasid al-Shariah as well as SDGs. Much of the sukuk market is dominated by sovereign sukuk, and such sukuk also need to be priced in line with the ESG rating of the issuer. This chapter uses data from 53 OIC countries on 12 indicators to derive an ESG index. Then, it uses the ESG index values to develop ESG-adjusted country risk premiums. The results on the ESG index show that Southeast Asian and some Central Asian countries have higher ESG performance. Nonetheless, some African countries also show exceptional performance. Countries immersed in conflicts and poverty traps lag behind on social, governance and environmental indicators. Among the Arab countries, Bahrain, Oman and Qatar rank above Saudi Arabia, UAE and Kuwait. Yemen and Syria are the only two countries which get a C+ rating, 28 countries get a B+ rating, and nine countries get a B rating. As many as 13 countries get an A rating. Only Brunei gets an A+ rating.

Keywords: ESG; Sovereign sukuk; ESG Risk Ratings; Maqasid al-Shariah; Environmental sustainability (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035349678
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