Green Sukuk and Carbon Neutrality in Malaysia: An Analysis of the Effectiveness of Islamic Finance in Funding Renewable Energy Projects

Hassanudin Mohd Thas Thaker, Bawani Lelchumanan and Sharifah Nabilah Syed Salleh

Chapter 9 in Green Finance and Energy Transition in ASEAN, 2026, pp 261-295 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter examines the role of green sukuk in advancing carbon neutrality in Malaysia, focusing on their effectiveness in funding renewable energy projects. Green sukuk are Shariah-compliant financial instruments that merge Islamic finance principles with environmental sustainability goals. Malaysia, a global leader in Islamic finance, issued the world’s first green Sukuk (singular form of sukuk) in 2017, setting a precedent for sustainable finance. The study explores the operational mechanisms and market dynamics of green sukuk and highlights successful case studies such as Tadau Energy and Quantum Solar Park. These projects demonstrate the potential of green sukuk to attract diverse investors and support large-scale renewable energy initiatives. The chapter also addresses challenges in the adoption and implementation of green sukuk, including high initial costs, regulatory complexities, and market awareness. Through qualitative research and expert interviews, the study provides insights into the socioeconomic and environmental impacts of green sukuk, emphasizing their role in promoting sustainable development and financial inclusion. The findings suggest that while green sukuk have significantly contributed to Malaysia’s renewable energy sector, further efforts are needed to enhance financial support market and innovation in green finance products. This research underscores the importance of integrating Islamic finance with sustainability objectives to achieve carbon neutrality and foster a resilient, inclusive economy.

Keywords: Green Finance; Energy Transition; ASEAN; Carbon Neutrality; Renewable Energy; Sustainable Finance; Climate Finance; Energy Policy; Green Bonds; Net-Zero; Transition Finance; Clean Energy Investment; Sustainable Development; Decarbonization; Climate Change Mitigation; ESG (Environmental; Social; and Governance); Low-Carbon Economy; Energy Markets; Financial Mechanisms for Sustainability; Energy Efficiency; Foreign Direct Investment (FDI) in Energy; Carbon Pricing; Policy and Regulation; Just Transition; Green Sukuk; Sustainable Infrastructure; Public-Private Partnerships (PPP); Institutional Investors in Clean Energy; Green Investment Strategies; Financing Renewable Energy; Southeast Asia Energy Policy; China Energy Investment; ASEAN Climate Goals; Energy Security in ASEAN; COP28 and Energy Transition; COP29; Economic Growth and Green Energy; Sustainable Power Systems; Carbon Markets in Asia; Green Hydrogen in ASEAN; Electrification and Smart Grids (search for similar items in EconPapers)
JEL-codes: G23 O13 Q01 Q40 Q50 Q56 (search for similar items in EconPapers)
Date: 2026
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