Islamabad: In a significant move toward green financing and sustainable development, the Government of Pakistan has announced the issuance of the country’s first Sustainable Investment Asset-Backed Sukuk Bond. This strategic financial initiative aims to mobilize local market capital to fund three ongoing clean energy projects across the country.
A Milestone for Green Financing in Pakistan
This development marks a major milestone in Pakistan’s journey toward climate resilience and renewable energy expansion. For the first time, the government will tap into Islamic finance principles through Sukuk bonds to support environmentally friendly and socially responsible infrastructure.
The new bonds will be launched under the Sustainable Investment Sukuk Framework, a policy mechanism recently approved by the federal cabinet. According to Ministry of Finance officials, the initial size of this Sukuk bond offering may be up to Rs30 billion, with an overall requirement of Rs52 billion to complete the three targeted projects.
Clean Energy Projects to Benefit from the Sukuk Bond
The funds generated through the Sukuk bond will be directed toward the completion of the following clean energy projects:
- Grok Storage Dam in Kharan District, Balochistan
- Naigaj Dam in Khairpur Nathan Shah, Sindh
- Shagarthang Hydropower Project in Skardu, Gilgit-Baltistan
All three projects are under construction and have experienced delays primarily due to financial constraints and cost escalations. The Sukuk bond is expected to unlock the necessary funding to expedite their completion and help Pakistan meet its renewable energy goals.
Project Details and Financial Requirements
Grok Storage Dam – Balochistan
Located in the arid region of Kharan district, the Grok Dam is a vital water storage and irrigation project intended to serve local agricultural communities. Initially approved at a lower cost, the total expenditure for the dam has now reached Rs28 billion, largely due to inflation, extended timelines, and additional construction requirements. To finalize the project, the government now requires an additional Rs5 billion.
The dam is expected to:
- Improve irrigation for drought-prone areas.
- Recharge groundwater resources.
- Support sustainable agriculture in southern Balochistan.
Naigaj Dam – Sindh
The Naigaj Dam project, which began in 2005, is situated in Khairpur Nathan Shah, a region known for facing chronic water shortages and frequent flooding. While originally conceived to mitigate flood risks and enhance water storage, progress has been sluggish due to recurring financial bottlenecks.
So far, the project has witnessed significant delays, and the required capital to complete the remaining infrastructure has risen to Rs22 billion. Once completed, the dam will:
- Store water for irrigation.
- Mitigate flood damage in lower Sindh.
- Enhance local water management systems.
Shagarthang Hydropower Project – Skardu
The third initiative, the Shagarthang Hydropower Project, is located in the scenic mountainous region of Skardu. This renewable energy facility is designed to generate 26 megawatts of electricity, directly addressing the power needs of Skardu city and nearby villages.
To complete this critical power generation project, the government estimates a funding need of Rs25 billion. Once operational, the project will:
- Reduce dependency on diesel generators.
- Lower greenhouse gas emissions.
- Provide reliable electricity to support tourism and local development.
Sukuk Bonds: An Islamic Finance Tool for Sustainability
The issuance of Sustainable Investment Sukuk Bonds represents a transformative step for Pakistan’s financial policy. Sukuk bonds are Shariah-compliant financial instruments, offering investors asset-backed securities without involving interest (Riba), which is prohibited in Islamic finance.
This instrument is particularly well-suited to funding long-term infrastructure and development projects. According to officials from the Ministry of Finance:
“Green Sukuk, Social Sukuk, and now Sustainable Sukuk offer a unique, viable financing mechanism that complies with Islamic financial principles while supporting climate-friendly development goals.”
With the global shift toward Environmental, Social, and Governance (ESG) investing, this bond will also signal Pakistan’s readiness to align with international sustainability standards and attract ethical investors.
Government’s Commitment to Renewable Energy and Climate Goals
The decision to issue the Sustainable Sukuk comes in alignment with Pakistan’s broader commitment to reduce its carbon footprint, enhance energy security, and promote climate resilience. The country has pledged to increase the share of renewable energy to 60% by 2030 under its Nationally Determined Contributions (NDCs) to the Paris Climate Agreement.
Additionally, these projects will contribute to:
- Achieving UN Sustainable Development Goals (SDGs) such as clean water, affordable energy, and climate action.
- Enhancing economic activity in underdeveloped regions.
- Reducing the reliance on imported fossil fuels.
Boosting Investor Confidence in Green Infrastructure
By launching this Sukuk bond, the government also hopes to:
- Build confidence among local investors.
- Encourage public-private partnerships in the energy sector.
- Create a replicable model for future sustainable financing.
Finance ministry officials believe that success in this venture could lead to more green and social Sukuk in the future for projects like urban transport, clean drinking water, renewable energy, and even climate-resilient housing.
Way Forward: Sukuk Framework Implementation and Monitoring
Now that the Sustainable Investment Sukuk Framework has been approved, the Ministry of Finance, in coordination with the State Bank of Pakistan (SBP) and Securities and Exchange Commission of Pakistan (SECP), will monitor the issuance, transparency, and use of proceeds.
Funds raised will be tracked to ensure they are directed exclusively toward approved projects, with periodic disclosures and third-party audits to reassure stakeholders and investors.
Conclusion
The launch of Pakistan’s first Sustainable Investment Sukuk Bond marks a crucial step in bridging the infrastructure financing gap through ethical and climate-resilient means. By aligning financial innovation with green development goals, the government is demonstrating its commitment to a greener, more sustainable future.
As the country faces mounting climate and energy challenges, such financial instruments can play a transformative role in ensuring inclusive growth, regional development, and long-term ecological stability.
