The greenwashing testing of green sukuk in MENA and ASEAN countries

This study investigates the potential greenwashing phenomena associated with green sukuk issuances across MENA and ASEAN countries. It explores whether green sukuk genuinely reflect environmentally responsible financing or are misused to attract investors through misleading green claims, drawing on stakeholder theory, signalling theory, and agency theory. The analysis examines the bidirectional relationship between environmental and energy indicators (pollution, carbon emissions, non-renewable energy use, renewable energy adoption) and the issuance volume and coupon rates of green sukuk. The study covers green sukuk issuances across MENA and ASEAN countries over the period 1990–2022. The results reveal widespread greenwashing practices in most countries studied, where issuers exploit environmental signals while diverting funds to non-ecological projects and offering high coupon rates to offset agency risks and information asymmetry. This undermines the legitimacy of green sukuk from both Islamic finance and environmental perspectives. In contrast, Turkey stands out by demonstrating a credible commitment to environmental responsibility, with green sukuk linked to lower pollution, reduced emissions, and increased renewable energy use, thereby validating stakeholder theory and strengthening issuer legitimacy. The findings call for stricter standards, enhanced certification requirements, and greater transparency in green sukuk markets to ensure alignment with genuine environmental objectives and to safeguard investor trust.