The global Islamic finance industry reached a new milestone this past weekend with the first-ever Fatwa issued for carbon credits as an enabling commodity for Islamic finance.
The Fatwa, a joint effort by the International Islamic Trade Finance Corporation (ITFC) and the newly formed MENA Voluntary Carbon Market (VCM), was announced on the sidelines of the 2022 United Nations Climate Change Conference, commonly known as COP27, held in Sharm El Sheikh, Egypt, this month.
“Today’s announcement is considered an important milestone in increasing the amount of carbon credits held by Islamic financial Institutions needed to further facilitate trade. This increases the overall global demand and hence the price for carbon credits, which in turn, incentivizes further project developers to carry out climate-positive projects,” Riham ElGizy, the director of MENA VCM, said.
“With climate change identified as one of the most serious and pressing threats to the world’s socio-ecosystems, it is critical to shed more light on Islamic finance’s role in mitigating climate change effects, especially given the MENA region’s increasing Islamic finance investments,” the ITFC said in a statement prior to the announcement.
The VCM initiative was launched jointly by the Saudi Public Investment Fund and Saudi Tadawul Group in September 2021, as part of the Kingdom’s efforts to reduce the impact of climate change and encourage institutions to reduce their carbon emissions.
Last month, the regional MENA VCM was established to help facilitate the world’s largest-ever carbon credit auction held on the 25th October 2022. The carbon credit certificates on auction allow the holder to emit a certain amount of greenhouse gases.
The ITFC had been one of 15 Saudi and regional entities that participated at the auction, which saw the sale of 1.4 million tons of carbon credits compliant with the Carbon Offsetting and Reduction Scheme for International Aviation standards and registered with environmental standards verification body Verra.