Mobilizing Green Capital in Emerging Economies: Green Sukuk, ESG Principles, and Sustainable Infrastructure

Abstract

This paper discusses how Green Sukuk (GS) can be used to fund infrastructure expansion (IE) and sustainable development in Pakistan and specifically renewable energy sector. It also addresses the role played by Environmental, Social and Governance (ESG) compliance in enhancing the effects of Islamic finance on sustainability outcomes. The respondents were interviewed face-to-face and comprised 233 managers, investors, and policymakers who are engaged directly in the renewable energy projects and Sukuk financing. The hypothesised relationship among GS, ESG compliance and sustainable infrastructure development were tested by means of structural equation modelling (SEM). The findings show that GS would play a significant role in renewable energy IE, which would help in promoting the sustainable development agenda of Pakistan. Additionally, the compliance with ESG shows a high level of mediation, which improves accountability, transparency, and consistency with global sustainability-related standards. The results show that the potential of GS to lead renewable energy projects might not fully be achieved, unless it is integrated with ESG. The paper emphasises the role of integrating ESG frameworks within GS structures as a way of enhancing investor confidence, boosting international investment and expediting the process of making Pakistan a clean energy nation. This paper can offer a new approach to mobilising green capital and promoting sustainable infrastructure in an emerging economy by connecting Islamic finance and ESG principles to renewable energy markets.