Sustainable responsible investment sukuk for Sustainable Development Goals: Analyzing the regulatory framework of sustainable responsible investment sukuk in Turkey

Abstract

The Turkish government is actively working toward developing the sukuk market in Turkey to make it a hub for issuing sukuk. Turkish participation banks are planning to promote Sustainable Development Goals (SDGs) through issuing sustainable sukuk (green sukuk). In 2020, Türkiye Sınai Kalkınma Bankası announced the first-ever SDG-related sukuk issuance worth 45 million Turkish lira on behalf of the Zorlu Energy company. In 2021, the Kuveyt Türk Katilim Bankasi A.S. issued the world’s first regulatory capital Tier 2 environmental, social, and governance and Islamic-compliant trust certificates on the landmark issuance of $350 million fixed-rate resettable sustainability Tier 2 certificates due in 2031. This study aims to highlight the importance of issuing SRI sukuk to achieve SDGs and to critically analyze the existing ecosystem, including the regulatory framework of issuing sustainable and responsible investment (SRI) sukuk in Turkey. It further points out the incentives that can attract prospective investors and issuers to participate in the SRI sukuk in Turkey. The study has adopted a qualitative approach by surveying the current literature as well as examining the existing Turkish SRI regulatory framework provisions. The study found that the legal and tax regulations regarding sukuk are not sufficient in Turkey compared to other jurisdictions such as Malaysia. Legal regulations allow only five types of sukuk issuance in Turkey. Tax regulations and exemptions target only kira (lease) sukuk, the term apparently widely used to include other types of sukuk. In addition, although Turkey has some sustainable sukuk issuance that aligns with SDGs, the legal and tax regulations on sustainable sukuk are still in the stage of formation. Detailed regulations need to be put in place to attract more investors and issuers to the Turkish market of SRI sukuk and other sustainability-related sukuk.