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Sovereign Green Sukuk: Environmental Risk Model Development

Author

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  • Arya Sasongko
  • Ali Sakti

Abstract

Green Sukuk continues to grow, but it still has problems in pricing. It has an unexplainable pricing difference between Green and Non-Green financing instruments. The research selects to takea fundamental asset pricing methodology that analyzes environmental risk. Sukuk and other financings might finance environmentally-harmful projects which support waste generation and accumulation. We noticed that unique environmental risks impose Sukuk holders, i.e., systemic and reputation risks. Finally, the model confirmed that these risks cause the price difference.

Suggested Citation

  • Arya Sasongko & Ali Sakti, 2020. "Sovereign Green Sukuk: Environmental Risk Model Development," Working Papers WP/02/2020, Bank Indonesia.
    • Handle: RePEc:idn:wpaper:wp022020
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    References listed on IDEAS

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    More about this item

    Keywords

    Islamic finance; Climate risk; Climate finance; Environmental systemic risk premium; Environmental Reputation Risk Premium;
    All these keywords.

    JEL classification:

    • F64 - International Economics - - Economic Impacts of Globalization - - - Environment
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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