The greenwaching testing of Green Sukuk in MENA and ASEAN countries

The greenwaching testing of Green Sukuk in MENA and ASEAN countries | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article The greenwaching testing of Green Sukuk in MENA and ASEAN countries Mohamed Sadok Gassouma, Adel Benhamed This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-6917316/v1 This work is licensed under a CC BY 4.0 License Status: Published Journal Publication published 22 Apr, 2026 Read the published version in Discover Sustainability → Version 1 posted 17 You are reading this latest preprint version Abstract This study investigates the potential greenwashing phenomena associated with green sukuk issuances across MENA and ASEAN countries from 1990 to 2022. Drawing on stakeholder theory, signalling theory, and agency theory, we explore whether green sukuk genuinely reflect environmentally responsible financing or are misused to attract investors through misleading green claims. Our empirical analysis examines the bidirectional relationship between environmental and energy indicators (e.g., pollution, carbon emissions, non-renewable energy use, renewable energy adoption) and both the issuance volume and coupon rates of green sukuk. The findings reveal a widespread pattern of greenwashing in all countries studied—except Turkey, where issuers exploit environmental signals to issue green sukuk while diverting funds to non-ecological projects, often offering high coupon rates to offset agency risks and information asymmetry. This practice undermines the legitimacy of green sukuk from both Islamic finance and environmental perspectives rejecting the role of the stakeholder’s theory leading to having an ecological conscience toward environment. In contrast, Turkey demonstrates a credible commitment to environmental responsibility, with green sukuk linked to lower pollution, reduced emissions, and increased renewable energy use, validating stakeholder theory and preserving issuer legitimacy. These results call for stricter standards and greater transparency in green sukuk markets to ensure alignment with true green principles. Introduction In response to escalating environmental challenges, green finance has emerged as a strategic tool to direct capital providers toward sustainable and environmentally friendly projects based on clean energy. Within this framework, green sukuk intended to align with the ethical foundations of Islamic finance, have gained attention as promising instruments aimed at promoting environmental protection through ecological awareness among investors, in line with stakeholder theory. However, despite their intended purpose, these instruments are susceptible to significant misuse. This includes the diversion of green sukuk funds toward non-ecological projects or a misalignment between investors and creditors in terms of ecological behaviour and governance. Such distortions create conflicts of interest and increase agency costs, often driven by manipulated or misleading signals, leading creditors to become distrustful. This dynamic gives rise to a phenomenon known as greenwashing , wherein ecological responsibility is falsely claimed. The greenwashing of green sukuk stems primarily from governance deficiencies, a lack of transparency, and information asymmetries between issuers (real project investors) and creditors (green financial market investors). These factors facilitate the opportunistic use of the green label, driven more by image-building and legitimacy-seeking than by genuine commitments to sustainability. This phenomenon raises critical concerns about the credibility and environmental effectiveness of green Islamic finance. The existence of greenwashing in green sukuk is primarily evidenced by the high coupon rates and the inability of these instruments to address key environmental challenges such as carbon emissions and climate change. The issuance of green sukuk that fails to reduce carbon output or enhance renewable energy production signals the ineffectiveness of these instruments in delivering genuine ecological outcomes. On the other hand, the publication of deteriorating environmental indicators serves as a signal to investors to initiate green projects through the issuance of green sukuk, aiming to take advantage of these shortcomings while contributing to environmental improvement. The issuance of green sukuk can be perceived as a credible signal in a polluted environment, leading investors to trust these instruments due to their ethical and ideological Islamic framing. However, this signal can be manipulated, and such sukuk may carry only the label of ethics without fulfilling their intended role as stabilizers of financial balance—namely, aligning returns with real project performance, limiting speculation, and protecting humanity and life. This leads not only to repeated greenwashing but also to a phenomenon of "Islamicwashing" , where ethical Islamic values are invoked without being genuinely upheld. Another signal that can stimulate investment in green sukuk is the disclosure of carbon emission rates by sukuk issuers, commonly referred to as the carbon footprint or ESG score. Both factors can significantly influence investor expectations regarding green sukuk These signals can lead to two opposing effects: either an increase in the coupon rate, resulting in a divergence from ecological and social returns, or a decrease in the coupon. A negative environmental signal may prompt creditors to demand higher compensation, incorporating an ecological risk premium into their expected returns. Conversely, a positive signal may cause creditors to overestimate potential gains due to heuristic cognitive behaviour and overconfidence bias in green projects. As a result, rising coupon rates may distort the alignment between real project outcomes and financial investments, ultimately reinforcing greenwashing practices. This article aims to examine the effect of environmental factors—related to energy, climate, and air pollution—as potential signals influencing the size of investments in green sukuk and their associated coupon rates. Paradoxically, it also tests the reverse relationship: how the issuance volume of green sukuk and the announcement of coupon rates may, in turn, affect the magnitude of environmental indicators. To this end, a theoretical framework is developed, drawing on stakeholder theory, agency theory, signalling theory, as well as legitimacy theory, institutional theory, and corporate social responsibility (CSR) theory. These perspectives are employed to explain the greenwashing phenomenon observed in the green sukuk market. This greenwashing may be amplified by information asymmetries and atypical investor behaviour. Section 1 presents the concept of greenwashing in its theoretical context, particularly its links to corporate governance and CSR theory. Section 2 introduces the empirical model and describes the estimation strategy. Section 3 discusses the results of the study, followed by a concluding section that assesses the presence or absence of greenwashing and its broader implications. Brief litterature review The phenomenon of greenwashing in green sukuk refers to portraying a misleading image of environmental responsibility without achieving actual ecological transformation through the green projects financed by these instruments. The concept was further developed by Delmas and Burbano ( 2011 ), who define greenwashing as a deceptive communication strategy used by companies to benefit from a green image without implementing truly sustainable practices. Qian et al. ( 2025 ) show that in China, environmentally focused institutional investors may unintentionally encourage greenwashing unless they hold a significant share of ownership, which allows for more effective oversight (Delmas & Burbano, 2011 ; Lyon & Montgomery, 2015 ). Although green sukuk are designed to align the principles of Islamic finance with sustainable development goals, they may paradoxically deviate from this purpose when they are used primarily to serve creditor interests, with limited regard for the issuing firm’s social and environmental responsibilities—while still pursuing profitability. The issuance of green sukuk is primarily rooted in stakeholder theory (Freeman, 1984 ; Donaldson & Preston, 1995 ). Developed by Freeman ( 1984 ), this theory asserts that firms must consider the interests of all stakeholders affected by their activities, not just shareholders. In this context, it helps explain how sukuk issuers seek to meet the expectations of investors in green financial markets regarding returns generated from ecological projects. In Islamic financial markets, the sukuk issuer is regarded as a real investor in renewable energy based projects and is therefore expected to assume societal responsibility. In the context of green sukuk, this responsibility entails a commitment to the environment, along with ecological awareness and education, to contribute to environmental preservation and human well-being. Such an issuer is expected to adhere to the core principles of corporate social responsibility (CSR) theory (Carroll, 1991 ; Dahlsrud, 2008 ), particularly ethical conduct and economic responsibility. Carroll ( 1991 ) outlines four dimensions of CSR; economic, legal, ethical, and philanthropic, which align closely with the nature of commitments expected from green sukuk issuers. These issuers must ensure that financial flows raised through green sukuk are directed toward ecological projects, while also offering investors a convincing financial return that reflects both economic and social value. However, stakeholder theory and CSR expectations can be challenged when green sukuk fail to deliver tangible environmental benefits, such as reducing carbon emissions, increasing renewable energy generation, or improving air quality. Issuances that do not achieve these environmental outcomes suggest that the signals sent by sukuk issuers are either not credible or are credible only when issued by a certain group and imitated without substance by others. In such cases, funds are often redirected away from green objectives toward polluting projects to minimize financial loss leading to greenwashing and undermining the effectiveness of green sukuk. Recent research confirms this complexity. For example, Ng and Tao ( 2016 ), Hall et al. ( 2018 ), and Sachs et al. ( 2019 ) emphasize that financial markets and institutional frameworks need to evolve to better channel capital toward sustainable projects, in line with stakeholder theory. These studies highlight structural barriers that can hinder the genuine alignment of financial actors’ interests with those of society and the environment. Although Benhamed and Gassouma ( 2023 ) do not directly address greenwashing, their analysis of Islamic mechanisms provides a useful lens through which this phenomenon can be critically examined. The authors show that Islamic finance promotes real economic outcomes through values such as transparency, social equity, and ethical accountability principles that stand in sharp contrast to the symbolic signaling typical of greenwashing. In this sense, just as Islamic mechanisms mitigate the inflationary effects of oil shocks by ensuring that financial practices are grounded in tangible socio-economic value, they could similarly reduce greenwashing by discouraging firms from making unsubstantiated environmental claims. This perspective aligns closely with stakeholder theory, which argues that firms must be accountable not only to shareholders but to a broad range of stakeholders, including communities, customers, and the environment. The Islamic approach reinforces this multi-stakeholder accountability by embedding social and ethical obligations into financial decisions. Myers and Majluf ( 1984 ) argue that when a firm discloses its debt level and that debt is high, it signals financial robustness and the capacity to meet obligations. If another firm imitates this behaviour without the same financial strength, it ultimately exposes its weakness and fails. This renders debt disclosure a credible signal (Myers & Majluf, 1984 ; Spence, 1973 ). By analogy, when green sukuk are issued merely to replicate credible environmental signalling without real backing, such imitation constitutes greenwashing. In contrast, Li and Deng ( 2025 ) have argued that small firms and debt free, have more opportunity to increase the greenwashing. So, medias and supervision can reduce the greenwashing. Qian et al. ( 2025 ) also showed that financially distressed firms tend to send false signals regarding environmental protection, which increases greenwashing. A polluted environment, within a context of information asymmetry (Jensen & Meckling, 1976 ), can act as a signal prompting investors to issue green sukuk and encouraging creditors to purchase them on financial markets. This signal is generally credible and difficult to imitate, thereby motivating investors to proceed with green sukuk issuance. However, it does not necessarily guarantee that the funds raised will not be diverted toward non-green projects. Additionally, the carbon footprint specific to each sukuk issuer can serve as a signal of the firm’s emission levels. A low emission rate acts as an encouraging signal for green sukuk issuance. Yet, when this signal is not credible or credible but easy to imitate, it can lead to the misallocation of green funds toward non-environmentally friendly projects, ultimately resulting in greenwashing. This signalling dimension is confirmed by the work of Liu and Lai ( 2021 ) and Elliott and Zhang ( 2022 ), who show that the proliferation of green sukuk in certain emerging markets aims as much to strengthen image as to drive genuine change. However, the absence of strict certification and oversight mechanisms highlighted notably by Flammer ( 2020 ) and Larcker and Watts ( 2020 ) undermines this credibility and facilitates greenwashing. Furthermore, Alamgir and Cheng ( 2023 ) emphasize the need for transparent dialogue between issuers and investors to restore trust. Xu et al ( 2025 ), shown that when Chinese firms divulgate information about the green investment cost to public, they gain investors' trust and can manage its cost of capital more effectively, and consequently, will not be compelled to resort to greenwashing. On the other hand, Qian et al. ( 2025 ) showed that the involvement of investors and creditors in the equity of debt-issuing firms helps mitigate agency conflicts, lowers the cost of debt, and reduces the issuer’s incentive to manipulate green investments, thereby decreasing greenwashing. Greenwashing tends to emerge under conditions of information asymmetry between issuers and investors. This lack of transparency creates an agency conflict: issuers aim to maximize the funds raised, while investors seek profitability. At the same time, investors may perceive ecological projects as risky and may overestimate their returns. They also face the risk that issuers will divert funds either to non-green projects or to projects not disclosed in the sukuk documentation, thereby increasing agency costs. Sukuk investors are often influenced by non-rational heuristic behaviours (Barberis & Thaler, 2003) in response to green sukuk signals. Their skepticism may stem from cognitive biases and representativeness heuristics, particularly due to prior assumptions about Islamic finance or green finance, leading them to associate these instruments with past projects that had similar labels but lacked credibility. As a result, creditor pressure on sukuk issuers may lead the latter to adopt shortcut behaviours. Rather than assessing project fundamentals, they may rely on representativeness heuristics, issuing sukuk modelled after previous green bonds with pre-set coupon structures, despite the fundamental difference that bond coupons are typically detached from project outcomes, while sukuk returns are meant to reflect the performance of the underlying assets. This dynamic results in sukuk becoming perceived as conventional bonds and their coupons being considered detached from actual project value. The studies by Musari & Hidayat ( 2023 ), Shalhoob ( 2023 ), and Yeşilyaprak ( 2023 ) illustrate the challenges related to governance and information asymmetries in Islamic markets, emphasizing that only strengthened environmental governance and rigorous control mechanisms can mitigate these risks and limit agency costs, in line with agency theory. The overestimation of profitability, fear of losses, and the rise in agency costs (Eisenhardt, 1989 ; Shleifer & Vishny, 1997 ) are key factors driving sukuk investors to demand higher returns, often in the form of elevated coupon rates. In this context, the coupon rate incorporates a “green premium” to compensate for environmental risk, as well as an “agency premium” related to potential manipulation by green investors, commonly referred to as a greenwashing premium. In this context, Gassouma ( 2019 ) examined accounting manipulation related to the emission of banking credit portfolios in Tunisia. Such manipulation may involve both green and non-green credit and can be conceptualized as either accrual-based greenwashing or credit portfolio manipulation. These practices reflect agency conflicts between managers and shareholders, often resulting in increased compensation demanded by stakeholders to offset perceived risks. This conflict can be mitigated through strong market discipline, supported by enhanced transparency and greater stakeholder involvement in the firm’s equity structure. In practice, green sukuk issuers often defend their legitimacy based on their Islamic and environmental reputations (Haniffa and Hudaib, 2007 ), in order to earn the trust of green sukuk investors in financial markets. As a result, many bond issuers leverage the ethics of Islamic finance and the momentum of green markets to differentiate themselves from conventional bond issuers. However, this legitimacy can be deceptive. Issuers may use the labels “Islamic” and “Green” merely as marketing tools. This reflects a symbolic rather than transformative approach to sustainability (Marquis & Toffel, 2012 ), which is symptomatic of greenwashing. The legitimacy of green sukuk is generally supported by an institutional framework involving sukuk commissions and green certification bodies. For a bond to qualify as a sukuk, it must be validated by a sukuk commission, which verifies the project details and the operating entity. The coupon rate should reflect the average return of the underlying project. For a sukuk to be considered “green,” it must also be certified by independent organizations that assign ESG scores to the issuer. In this context, greenwashing may arise from a symbolic desire to comply with environmental standards. As shown in the 2024 issuance records in the MENA region (Arab Today, 2024), such legitimacy is sometimes achieved at the expense of actual environmental rigor. In this context, Li and Deng ( 2025 ) showed that strong environmental protection legislation implemented in China reduces greenwashing. Greenwashing may also occur through the acquisition of green certificates and carbon credits. By purchasing green certificates or tradable emission allowances on securities exchanges, sukuk issuers may obtain green certification, even if their projects are not genuinely ecological as a form of incentive. In this way, greenwashing can emerge through the creation of a "green portfolio" owned by the issuer, which grants a green label to their sukuk, regardless of whether the funds are directed toward sustainable projects. Model Design 1- Variables conception Building on the theoretical framework, this study adopts a quantitative explanatory approach to analyze the phenomenon of greenwashing in the green sukuk market. More specifically, it seeks to understand how certain firms may utilize these financial instruments for strategic environmental communication, without achieving real ecological transformation. The conceptual model is based on examining the relationship between environmental variables and the financial variables of green sukuk, interpreted through a set of theoretical lenses to uncover the underlying logics driving such practices. Environmental variables such as Air pollution (PM2.5), CO₂ emissions, renewable energy production, and energy consumption serve as key indicators of ecological performance. However, in a greenwashing context, these indicators may be instrumentalized to maintain a green image without delivering tangible results. Greenwashing theory helps illuminate the gap between issuer claims and observed environmental outcomes. Meanwhile, legitimacy theory highlights how firms may display even weak or questionable environmental performance to retain social acceptance, while institutional theory draws attention to the absence or inconsistency of reporting standards, which enables opaque practices to persist. Renewable energy production and reductions in fossil fuel consumption are often presented as justifications for issuing green sukuk. Yet, under stakeholder theory, such actions may be more a response to social or regulatory pressure than a sign of genuine commitment. This “greening” can thus remain superficial, especially when oversight and certification mechanisms are lacking. From a financial perspective, two primary variables are considered: the coupon rate and the investment volume. The coupon rate reflects the return promised to investors. A mismatch can occur when the rate does not align with the actual environmental quality of the project—a distortion explained by agency theory. It emphasizes the information asymmetry between the issuer (agent) and the investor (principal), which creates fertile ground for greenwashing. In such cases, issuers may redirect funds to less sustainable projects while continuing to benefit from the market’s perception of greenness. Furthermore, behavioural finance theory suggests that investors guided by bounded rationality, may rely on simplified signals (such as the “green sukuk” label) without critically evaluating actual environmental performance. The issuance volume of green sukuk is another strategic lever. Signalling theory offers insight into how firms may attempt to enhance their green credibility by multiplying so-called “green” issuances, even in the absence of meaningful project quality. This strategy aligns with a logic of symbolic legitimation, where the act of issuing green sukuk takes precedence over their environmental effectiveness. In the absence of strict verification standards as noted in institutional theory such signals may be socially accepted without rigorous scrutiny. Thus, the combination of environmental and financial variables is examined through the lens of multiple theories from organizational and financial behaviour to better understand the mechanisms of greenwashing in Islamic green finance. This integrated theoretical approach helps identify areas of informational vulnerability, social pressure, and symbolic manipulation that facilitate the misappropriation of green sukuk, undermining their original objectives. 2- Sample The panel data regression method is employed to evaluate the impact of green sukuk issuance on environmental variables by comparing temporal changes between a treatment group (countries utilizing green sukuk) and a control group (countries not utilizing green sukuk). This approach is designed to isolate the causal effect of green sukuk on key environmental indicators across the selected countries (Indonesia, Malaysia, Saudi Arabia, the United Arab Emirates (UAE), and Türkiye). 3- Data Source Data for this research will be obtained from the following sources: Green Sukuk data, including Sukuk Amount and Sukuk Coupon, will be obtained from financial institutions issuing sukuk and financial authorities Refinitiv Eikon. The Environmental variable data (will be obtained from world bank data. Table 1 Descriptive statistics of variables Variables Obs Mean Std. Dev Min Max Air pollution 70 34.39641 16.246 16.43742 67.67732 Renewable energy 155 12.33787 16.24293 0 59.18 CO2 emission 155 12.27579 0.5869876 10.90806 13.31346 Energy use 126 7.805894 0.9558079 6.294429 9.36691 Sukuk 113 17.23914 3.81335 10.68411 21.63956 Coupon 113 6.514528 7.443448 0.037 27.5 Air_pollution : PM2.5 air pollution, mean annual exposure (micrograms per cubic meter) CO2 CO2 emissions (kt) Energy use : Energy use (kg of oil equivalent per capita) Renewable-energy : Renewable energy consumption (% of total final energy consumption) Sukuk Average Amount Issued for Green Sukuk (% of the total per year Coupon : Average Green Sukuk Coupon Rate (% of the total per year 3- Models We have two parts of models: The first, describe the effect of environmental variables on sukuk characteristics (the amount of investment and the sukuk return called Yield coupon). $$\:\varvec{S}\varvec{u}\varvec{k}\varvec{u}\varvec{k}\:\varvec{a}\varvec{m}\varvec{o}\varvec{u}\varvec{n}\varvec{t}=\:{\varvec{a}}_{0}+{\varvec{a}}_{1}\:\times\:\varvec{A}\varvec{i}\varvec{r}\:\varvec{p}\varvec{o}\varvec{l}\varvec{l}\varvec{u}\varvec{t}\varvec{i}\varvec{o}\varvec{n}+\:\:{\varvec{a}}_{2}\times\:\varvec{C}\varvec{o}2\:\varvec{e}\varvec{m}\varvec{i}\varvec{s}\varvec{s}\varvec{i}\varvec{o}\varvec{n}+{\varvec{a}}_{3}\times\:\:\varvec{e}\varvec{n}\varvec{e}\varvec{r}\varvec{g}\varvec{y}\:\varvec{u}\varvec{s}\varvec{e}+{\varvec{a}}_{4}\times\:\varvec{r}\varvec{e}\varvec{n}\varvec{e}\varvec{w}\varvec{a}\varvec{b}\varvec{l}\varvec{e}\:\varvec{e}\varvec{n}\varvec{e}\varvec{r}\varvec{g}\varvec{y}$$ $$\:\varvec{S}\varvec{u}\varvec{k}\varvec{u}\varvec{k}\:\varvec{c}\varvec{o}\varvec{u}\varvec{p}\varvec{o}\varvec{n}=\:{\varvec{a}}_{0}+{\varvec{a}}_{1}\:\times\:\varvec{A}\varvec{i}\varvec{r}\:\varvec{p}\varvec{o}\varvec{l}\varvec{l}\varvec{u}\varvec{t}\varvec{i}\varvec{o}\varvec{n}+\:\:{\varvec{a}}_{2}\times\:\varvec{C}\varvec{o}2\:\varvec{e}\varvec{m}\varvec{i}\varvec{s}\varvec{s}\varvec{i}\varvec{o}\varvec{n}+{\varvec{a}}_{3}\times\:\varvec{C}\varvec{O}2\:\varvec{e}\varvec{n}\varvec{e}\varvec{r}\varvec{g}\varvec{y}\:\varvec{u}\varvec{s}\varvec{e}+{\varvec{a}}_{4}\times\:\varvec{r}\varvec{e}\varvec{n}\varvec{e}\varvec{w}\varvec{a}\varvec{b}\varvec{l}\varvec{e}\:\varvec{e}\varvec{n}\varvec{e}\varvec{r}\varvec{g}\varvec{y}$$ Table 2 Impact of environnemental variables on green sukuk Country Dependent Variable Sukuk Regression Coupon Regression Global Air pollution 3.173e-08*** (1.457e-09) 7.056e + 00*** (8.179e-01) co2 emission 7.908e-05** (4.236e-05) 1.639e + 04* (1.155e + 04) Energy use 4.172e-06*** (8.135e-07) 9.965e + 02*** (2.315e + 02) Renewable energy 1.474e-08*** (4.577e-09) 3.838e + 00*** (1.237e + 00) Indonesia Air pollution 8.778e-08** (3.753e-09) 4.491e + 00** (1.920e-01) co2 emission 1.467e-03** (1.662e-04) 7.506e + 04** (8.501e + 03) Energy use 3.109e-06* (1.526e-07) 1.591e + 02* (7.809e + 00) Renewable energy 1.579e-07** (1.405e-08) 8.081e + 00** (7.190e-01) Malaysia Air pollution 9.641e-07*** (5.504e-08) 4.152e + 00*** (2.370e-01) co2 emission 7.990e-03*** (1.022e-03) 3.441e + 04*** (4.402e + 03) Energy use 1.134e-04** (9.020e-06) 4.883e + 02* (3.884e + 01) Renewable energy 1.836e-07*** (3.454e-08) 7.906e-01*** (1.488e-01) Saudi Arabia Air pollution 4.553e-08** (1.564e-09) 3.875e + 01** (1.331e + 00) co2 emission 2.873e-04* (3.601e-05) 2.445e + 05* (3.065e + 04) Energy use 4.167e-06*** (2.729e-07) 15.27 3.546e + 03*** (2.322e + 02) 15.27 Renewable energy 1.187e-11** (2.876e-12) 1.011e-02*** (2.448e-03) UAE Air pollution 6.528e-08** (9.027e-10) 1.086e + 01*** (1.502e-01) co2 emission 1.989e-04** (2.554e-05) 3.309e + 04*** (4.249e + 03) Energy use 1.330e-05* (7.717e-07) 2.212e + 03** (1.284e + 02) Renewable energy 1.416e-10*** (1.930e-11) 2.355e-02*** (3.211e-03) Turkiye Air pollution 1.538e-07** (1.897e-09) 4.003e + 00* (4.937e-02) co2 emission 1.534e-03*** (1.366e-04) 3.991e + 04* (3.554e + 03) Energy use 7.722e-06** (4.306e-07) 2.009e + 02** (1.120e + 01) Renewable energy 8.883e-08* (7.556e-09) 2.311e + 00*** (1.966e-01) *significant at 10% level ** significant at 5% level *** significant at 1% level ( ) std deviation The second models test the paradoxical effect of sukuk. They test the effect of each environmental factor on sukuk amount and coupon rate. We obtain 4 models: $$\:\begin{array}{c}Air\:pollution\:\:\:\:\:\:\:\:\:\:\:\:\:\:={\varvec{a}}_{0}\times\:\varvec{S}\varvec{u}\varvec{k}\varvec{u}\varvec{k}\:\varvec{a}\varvec{m}\varvec{o}\varvec{u}\varvec{n}\varvec{t}+{\varvec{a}}_{2}\times\:\varvec{c}\varvec{o}\varvec{u}\varvec{p}\varvec{o}\varvec{n}\\\:Renewable\:energy\:\:\:={\varvec{a}}_{0}\times\:\varvec{S}\varvec{u}\varvec{k}\varvec{u}\varvec{k}\:\varvec{a}\varvec{m}\varvec{o}\varvec{u}\varvec{n}\varvec{t}+{\varvec{a}}_{2}\times\:\varvec{c}\varvec{o}\varvec{u}\varvec{p}\varvec{o}\varvec{n}\\\:\begin{array}{c}\:\\\:\:\:\:Co2\:emission\:\:\:\:\:\:\:\:\:\:\:\:\:=\:{\varvec{a}}_{0}\times\:\varvec{S}\varvec{u}\varvec{k}\varvec{u}\varvec{k}\:\varvec{a}\varvec{m}\varvec{o}\varvec{u}\varvec{n}\varvec{t}+{\varvec{a}}_{2}\times\:\varvec{c}\varvec{o}\varvec{u}\varvec{p}\varvec{o}\varvec{n}\\\:\begin{array}{c}\:Energy\:use\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:\:={\varvec{a}}_{0}\times\:\varvec{S}\varvec{u}\varvec{k}\varvec{u}\varvec{k}\:\varvec{a}\varvec{m}\varvec{o}\varvec{u}\varvec{n}\varvec{t}+{\varvec{a}}_{2}\times\:\varvec{c}\varvec{o}\varvec{u}\varvec{p}\varvec{o}\varvec{n}\\\:\\\:\:\end{array}\end{array}\end{array}$$ Table 3 Impact of green sukuk on environmental variables Country Dependent Variable Pollution CO2 Energy use Renewable Global Sukuk amount 2.928e + 07** 2.047e + 06 3.136e + 02** (1.721e + 02) 4.59e + 02** (1.072e + 04) -1.585e + 06* (1.677e + 06) coupon 8.169e-02*** (1.723e-02) 1.303e-06*** (1.449e-06) 2.418e-05*** (9.019e-05) -3.651e-03*** (1.412e-02) Indonesia Sukuk amount 1.256e-06** (1.809e-05) 5.598e-11** (8.711e-10) 1.502e-08* (4.507e-07) -4.304e-07*** (1.204e-05) coupon 2.467e-14*** (3.409e-13) 1.087e-18*** (1.641e-17) 2.912e-16*** (8.493e-15) -8.402e-15*** (2.269e-13) Malaysia Sukuk amount 1.423e-09** (4.008e-05) 2.774e-10** (2.684e-09) 5.190e-09* (3.426e-07) -8.409e-11* (5.743e-05) coupon 1.878e-16*** (9.309e-12) 6.40e-17*** (6.235e-16) 1.207e-15*** (7.957e-14) -8.83e-18*** (1.334e-11) Saudi Arabia Sukuk amount 2.354e-08*** (9.553e-05) 1.502e-09*** (1.062e-08) 1.397e-09*** (1.418e-06) -2.290e-06*** (5.252e-02) coupon 4.066e-17*** (1.121e-13) 1.766e-18*** (1.247e-17) 1.478e-18*** (1.664e-15) -9.840e-15*** (6.165e-11) UAE Sukuk amount 4.449e-07** (3.960e-06) 1.609e-10*** (3.955e-10) 9.273e-10** (1.095e-08) -8.469e-08* (2.654e-04) coupon 2.699e-15*** (2.231e-14) 9.649e-19*** (2.229e-18) 5.346e-18*** (6.170e-17) -9.753e-16*** (1.496e-12) Turkiye Sukuk amount -2.910e-09* (3.203e-05) -1.492e-10* (4.755e-09) -1.863e-09** (1.301e-06) 7.451e-09* (1.895e-05) coupon -1.735e-16*** (1.242e-12) -5.746e-18*** (1.845e-16) -5.551e-17*** (5.047e-14) 4.441e-16*** (7.353e-13) *significant at 10% level ** significant at 5% level *** significant at 1% level ( ) std deviation Main Results Referring to Table 2 , we observe that across all countries, air pollution and carbon (CO₂) emissions have a positive and significant effect on both green sukuk investment and associated coupon rates. In contexts of heightened pollution, green sukuk issuers use these instruments as a signal of their environmental commitment, consistent with stakeholder theory. Issuers seek to protect their legitimacy through ethical actions, materialized by the issuance of green sukuk intended to finance environmentally responsible projects with the aim of attracting climate-conscious investors. This strategic use of environmental signals aligns with Spence ( 1973 ) and Myers & Majluf ( 1984 ), who highlight how signalling can be manipulated in contexts of asymmetry, potentially leading to greenwashing when not backed by real environmental performance (Qian et al., 2025 ). At the same time, high pollution levels heighten investors' perception of risk. In response, investors demand an environmental risk premium reflecting a higher coupon rate to compensate for exposure to uncertain ecological conditions. Moreover, investors in Islamic green sukuk often exhibit heuristic behaviour driven by representativeness bias based on past risky sukuk or availability bias, shaped by their personal beliefs and preconceived notions about Islamic finance. As a result, they tend to include a risk premium in the offered coupon rate. This aligns with Musari & Hidayat ( 2023 ), who show that weak governance structures in Islamic financial markets intensify agency conflicts and reduce credibility of environmental claims. These investors also fear opportunistic behaviour from issuers, particularly the diversion of green funds to unrelated or non-sustainable projects. Consequently, they may seek stronger oversight through specialized monitoring institutions, which further increases agency costs and is reflected in higher coupon rates. Both the intensity of non-renewable energy use and the level of renewable energy production are found to have a positive and significant impact on sukuk issuance and coupon rates. Thus, a combination of high non-renewable energy use and increased renewable energy production leads to greater volumes of green sukuk and higher associated coupon payments. The use of non-renewable energy acts as a credible signal by firms aiming to transition toward clean energy, such as renewable energy production through green sukuk issuance. In the presence of information asymmetry, investors financing these projects as creditors incur agency costs and, therefore, demand higher compensation in the form of green premiums to hedge against climate-related risk and the revenue volatility of renewable energy projects. Table 3 shows that green sukuk issuance and associated coupon rates also have a positive effect on pollution and carbon emissions for the entire sample except for Türkiye. This finding contradicts the expected effectiveness of green finance and can be explained by the presence of greenwashing risks. Some projects financed by green sukuk are not genuinely ecological in nature, leading to misallocation of funds and a worsening of pollution levels. In such cases, the signal conveyed by the development of green sukuk markets was either not credible or was imitated by conventional bond issuers treating sukuk as standard, non-green instruments. This reflects the concerns raised by Flammer ( 2020 ) and Larcker & Watts ( 2020 ) about insufficient verification and the tendency of firms to mimic green instruments without environmental rigor. On the other hand, real investors in green projects may have issued misleading signals to green financial markets, reflecting a lack of environmental awareness. Furthermore, sukuk investors did not lower their return expectations; on the contrary, they increased them, which reinforces the emergence of a greenwashing phenomenon. Similarly, a report from the Climate Bonds Initiative (2022) highlights that the absence of transparency in the selection and monitoring of green projects can dilute the true environmental impact of issued instruments, including sukuk. Additionally, behavioural finance theory suggests that, in a context of growing skepticism about the effectiveness of green projects, investors may behave irrationally guided by heuristic thinking and limited experience, such as the “law of small numbers” and thus demand higher returns. Environmental governance emphasizes the need for clear regulation and strict criteria to ensure that green sukuk actually finance sustainable projects. The World Bank (2020), in its analysis of sustainable Islamic finance, underscores this point by recommending a reinforced governance framework for green sukuk issuance due to risks of institutional-level misappropriation. This misuse driven by institutions, can harm the legitimacy of sukuk issuers who capitalize on the “Islamic Green” label without delivering real environmental impact. Returning to Table 3 , the expected reciprocal relationship between energy intensity and green sukuk issuance is not confirmed. High volumes of green sukuk issuance, accompanied by rising interest rates, tend to accelerate the use of non-renewable energy and discourage investment in renewable energy. This suggests that the signal of renewable energy production was either not credible or was imitated by other issuers amid information asymmetry. As a result, the financed projects were not genuinely ecological nor did they guarantee renewable energy use. This misdirection increases environmental risk and agency costs, leading to higher coupon rates and reinforcing the presence of greenwashing. These dynamics reflect the findings of Li & Deng ( 2025 ), who show that weak regulation enables small firms or opportunistic actors to imitate credible green signals without real backing. Moreover, the increase in coupon rates does not serve social welfare nor reflect an ecological premium. Instead, the green premium is captured by investors rather than being distributed to nature or the community making these sukuk more comparable to conventional bonds and ignoring the principles of corporate social responsibility toward the environment. This divergence from CSR principles echoes the analysis by Benhamed & Gassouma ( 2023 ), who stress the importance of ethical alignment in Islamic finance beyond profitability. In traditional bond markets, rising risk leads to higher risk premiums and thus higher coupon rates to satisfy investors. In sukuk markets, however, investor expectations of returns tend to be based more on the profitability of green projects than on genuine environmental intent or cognitive evaluation making sukuk resemble conventional bonds. Ahmad et al. (2024) point out that well-structured sukuk can contribute to improved air quality. However, in this case, the ecological premium is captured by investors rather than being reinvested into social or environmental value, further aligning green sukuk with conventional bonds. In contrast, in the case of Türkiye, the issuance of sukuk with high coupon rates serves as a credible signal that cannot be easily imitated by other issuers. This signal has been associated with reductions in pollution and carbon emissions, along with improved air quality, successfully preserving issuer legitimacy through ecological awareness and commitment to nature. Although these sukuk contributed to environmental improvement, investors still demanded higher returns due to agency costs borne by issuers, resulting in a risk premium to guard against potential greenwashing, hence the high coupon rates. Moreover, green sukuk issued in Türkiye have encouraged renewable energy production and discouraged fossil fuel usage. Issued at competitive rates, these sukuk directed green funds toward ecological investments that produce less carbon and not excessive returns while sharing the ecological premium. These sukuk tend to attract more engaged investors, who are less driven by pure profit and more committed to funding genuinely sustainable projects. As a result, they contribute to pollution reduction and improved air quality, reinforcing the societal value of participatory Islamic finance. This reinforces the conclusion of Alamgir & Cheng ( 2023 ) and Xu et al. ( 2025 ), who show that transparency and active dialogue between issuers and investors lead to better outcomes and restore confidence in green instruments. Conclusion This article highlights the paradox inherent in financial theories as applied to the issuance of green sukuk, particularly stakeholder theory, which calls for ecological awareness toward financial actors; signalling theory, which relies on the transmission of credible, hard-to-imitate signals to gain investor trust; and agency theory—which emphasizes the importance of information disclosure between the sukuk issuer and investor regarding the nature and features of the green project, as well as the rationality of investors. These theories, however, may be challenged or even manipulated for the benefit of green sukuk issuers. An issuer may divert green sukuk funds toward non-ecological projects while incentivizing investors with high coupon payments. This undermines the credibility of the signals conveyed at issuance and allows non-credible issuers to imitate carbon footprints or replicate the Islamic green sukuk label without substance—thereby damaging the issuer’s legitimacy. As a result, stakeholder theory no longer ensures ecological responsibility, signalling theory becomes irrelevant, and the trust between issuer and investor deteriorates. Consequently, agency theory also fails to hold, and agency costs emerge, leading to higher coupon rates. This leads to the creation of sukuk instruments that fail to comply with both the principles of Islamic finance and the ecological objectives of green finance. They increasingly resemble conventional bonds and embody a phenomenon of greenwashing. The empirical analysis assessed the impact of environmental and energy-related factors on the issuance volume and coupon levels of green sukuk and vice versa, using data from financial markets in MENA and ASEAN countries (Saudi Arabia, the UAE, Indonesia, Malaysia, and Türkiye) over the period 1990–2022. The results show a clear presence of greenwashing in green sukuk issuance in all countries except Türkiye. In these countries, sukuk issuers use national indicators such as pollution levels, carbon emissions, and renewable energy production as signals to attract green-conscious investors. In order to escape agency oversight, these issuers often offer high coupon rates. On the other side, investors, faced with potential information asymmetry, demand a green premium as part of their cost of capital, further raising the coupon rate. Although green sukuk are intended to reduce pollution and promote renewable energy use, in practice their issuance was associated with increasing pollution and a disincentive for clean energy paired with higher coupons. This suggests a diversion of green funds to non-ecological projects, a disregard for the legitimacy of the sukuk, and a lack of environmental awareness from issuers. As a result, agency costs borne by investors increase, reflected in higher coupon demands, reinforcing a cycle of greenwashing that ignores both ecological and Islamic legitimacy. In contrast, Türkiye demonstrated results that favoured ecological awareness. Green sukuk issuance there did not exhibit signs of greenwashing. The issuance of sukuk with lower coupons contributed to reductions in pollution and carbon emissions, and to increased renewable energy production. This confirms that issuers in Türkiye respected stakeholder theory by adopting environmentally responsible practices, thereby preserving their green legitimacy within the community. Declarations Declaration Funding The authors gratefully acknowledge the financial support provided by King Faisal University for this research project. The funding covered various aspects of the study, including data collection, analysis, and manuscript preparation. This support played a key role in enabling the successful completion and submission of the research for publication. The authors confirm that the funder had no role in the design of the study, the interpretation of data, or the decision to publish the results. Clinical Trial Declaration: This study does not involve any clinical trial and therefore does not require registration in a clinical trial registry. The research is based on financial and economic data and does not include human or animal participants. Consent to Participate Declaration: All participants involved in this study provided their informed consent prior to participation. The purpose of the study was clearly explained, and participation was entirely voluntary. The participants had the right to withdraw at any time without any consequences. Competing Interests Declaration: The authors declare that there are no financial, professional, or personal conflicts of interest that could have influenced the research presented in this manuscript. The study was conducted independently, and no external entity influenced the design, analysis, interpretation, or publication of the findings. All authors affirm that they have no affiliations or relationships that could be perceived as potential sources of bias. Data Availability Declaration The data that support the findings of this study are available from the corresponding author upon reasonable request. Due to confidentiality agreements and restrictions related to proprietary or institutional data access, the dataset is not publicly available. However, summary statistics and analytical code can be provided for academic and non-commercial purposes. Ethics Declaration This study does not involve any experiments on humans or animals and therefore does not require ethical approval. The research is based entirely on publicly available financial and economic data. As such, it falls outside the scope of institutional ethics committee review. References Alamgir, M., & Cheng, M.-C. (2023). Do Green Bonds Play a Role in Achieving Sustainability? Sustainability, 15 (13), 10177. https://doi.org/10.3390/su151310177 Benhamed, A., & Gassouma, M. S. (2023). Preventing Oil Shock Inflation: Sustainable Development Mechanisms vs. Islamic Mechanisms . Sustainability , 15 (12), 9837. https://doi.org/10.3390/su15129837 Carroll, A. B. (1991). 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Within this framework, green sukuk intended to align with the ethical foundations of Islamic finance, have gained attention as promising instruments aimed at promoting environmental protection through ecological awareness among investors, in line with stakeholder theory. However, despite their intended purpose, these instruments are susceptible to significant misuse. This includes the diversion of green sukuk funds toward non-ecological projects or a misalignment between investors and creditors in terms of ecological behaviour and governance. Such distortions create conflicts of interest and increase agency costs, often driven by manipulated or misleading signals, leading creditors to become distrustful. This dynamic gives rise to a phenomenon known as \u003cb\u003egreenwashing\u003c/b\u003e, wherein ecological responsibility is falsely claimed.\u003c/p\u003e\u003cp\u003eThe greenwashing of green sukuk stems primarily from governance deficiencies, a lack of transparency, and information asymmetries between issuers (real project investors) and creditors (green financial market investors). These factors facilitate the opportunistic use of the green label, driven more by image-building and legitimacy-seeking than by genuine commitments to sustainability. This phenomenon raises critical concerns about the credibility and environmental effectiveness of green Islamic finance.\u003c/p\u003e\u003cp\u003eThe existence of greenwashing in green sukuk is primarily evidenced by the high coupon rates and the inability of these instruments to address key environmental challenges such as carbon emissions and climate change. The issuance of green sukuk that fails to reduce carbon output or enhance renewable energy production signals the ineffectiveness of these instruments in delivering genuine ecological outcomes.\u003c/p\u003e\u003cp\u003eOn the other hand, the publication of deteriorating environmental indicators serves as a signal to investors to initiate green projects through the issuance of green sukuk, aiming to take advantage of these shortcomings while contributing to environmental improvement.\u003c/p\u003e\u003cp\u003eThe issuance of green sukuk can be perceived as a credible signal in a polluted environment, leading investors to trust these instruments due to their ethical and ideological Islamic framing. However, this signal can be manipulated, and such sukuk may carry only the label of ethics without fulfilling their intended role as stabilizers of financial balance\u0026mdash;namely, aligning returns with real project performance, limiting speculation, and protecting humanity and life. This leads not only to repeated greenwashing but also to a phenomenon of \u003cem\u003e\"Islamicwashing\"\u003c/em\u003e, where ethical Islamic values are invoked without being genuinely upheld.\u003c/p\u003e\u003cp\u003eAnother signal that can stimulate investment in green sukuk is the disclosure of carbon emission rates by sukuk issuers, commonly referred to as the carbon footprint or ESG score. Both factors can significantly influence investor expectations regarding green sukuk\u003c/p\u003e\u003cp\u003eThese signals can lead to two opposing effects: either an increase in the coupon rate, resulting in a divergence from ecological and social returns, or a decrease in the coupon. A negative environmental signal may prompt creditors to demand higher compensation, incorporating an ecological risk premium into their expected returns. Conversely, a positive signal may cause creditors to overestimate potential gains due to heuristic cognitive behaviour and overconfidence bias in green projects. As a result, rising coupon rates may distort the alignment between real project outcomes and financial investments, ultimately reinforcing greenwashing practices.\u003c/p\u003e\u003cp\u003eThis article aims to examine the effect of environmental factors\u0026mdash;related to energy, climate, and air pollution\u0026mdash;as potential signals influencing the size of investments in green sukuk and their associated coupon rates. Paradoxically, it also tests the reverse relationship: how the issuance volume of green sukuk and the announcement of coupon rates may, in turn, affect the magnitude of environmental indicators.\u003c/p\u003e\u003cp\u003eTo this end, a theoretical framework is developed, drawing on stakeholder theory, agency theory, signalling theory, as well as legitimacy theory, institutional theory, and corporate social responsibility (CSR) theory. These perspectives are employed to explain the greenwashing phenomenon observed in the green sukuk market. This greenwashing may be amplified by information asymmetries and atypical investor behaviour.\u003c/p\u003e\u003cp\u003eSection 1 presents the concept of greenwashing in its theoretical context, particularly its links to corporate governance and CSR theory. Section \u003cspan refid=\"Sec3\" class=\"InternalRef\"\u003e2\u003c/span\u003e introduces the empirical model and describes the estimation strategy. Section \u003cspan refid=\"Sec7\" class=\"InternalRef\"\u003e3\u003c/span\u003e discusses the results of the study, followed by a concluding section that assesses the presence or absence of greenwashing and its broader implications.\u003c/p\u003e"},{"header":"Brief litterature review","content":"\u003cp\u003eThe phenomenon of greenwashing in green sukuk refers to portraying a misleading image of environmental responsibility without achieving actual ecological transformation through the green projects financed by these instruments. The concept was further developed by Delmas and Burbano (\u003cspan citationid=\"CR5\" class=\"CitationRef\"\u003e2011\u003c/span\u003e), who define greenwashing as a deceptive communication strategy used by companies to benefit from a green image without implementing truly sustainable practices. Qian et al. (\u003cspan citationid=\"CR24\" class=\"CitationRef\"\u003e2025\u003c/span\u003e) show that in China, environmentally focused institutional investors may unintentionally encourage greenwashing unless they hold a significant share of ownership, which allows for more effective oversight (Delmas \u0026amp; Burbano, \u003cspan citationid=\"CR5\" class=\"CitationRef\"\u003e2011\u003c/span\u003e; Lyon \u0026amp; Montgomery, \u003cspan citationid=\"CR18\" class=\"CitationRef\"\u003e2015\u003c/span\u003e). Although green sukuk are designed to align the principles of Islamic finance with sustainable development goals, they may paradoxically deviate from this purpose when they are used primarily to serve creditor interests, with limited regard for the issuing firm\u0026rsquo;s social and environmental responsibilities\u0026mdash;while still pursuing profitability.\u003c/p\u003e\u003cp\u003eThe issuance of green sukuk is primarily rooted in stakeholder theory (Freeman, \u003cspan citationid=\"CR10\" class=\"CitationRef\"\u003e1984\u003c/span\u003e; Donaldson \u0026amp; Preston, \u003cspan citationid=\"CR6\" class=\"CitationRef\"\u003e1995\u003c/span\u003e). Developed by Freeman (\u003cspan citationid=\"CR10\" class=\"CitationRef\"\u003e1984\u003c/span\u003e), this theory asserts that firms must consider the interests of all stakeholders affected by their activities, not just shareholders. In this context, it helps explain how sukuk issuers seek to meet the expectations of investors in green financial markets regarding returns generated from ecological projects.\u003c/p\u003e\u003cp\u003eIn Islamic financial markets, the sukuk issuer is regarded as a real investor in renewable energy based projects and is therefore expected to assume societal responsibility. In the context of green sukuk, this responsibility entails a commitment to the environment, along with ecological awareness and education, to contribute to environmental preservation and human well-being. Such an issuer is expected to adhere to the core principles of corporate social responsibility (CSR) theory (Carroll, \u003cspan citationid=\"CR3\" class=\"CitationRef\"\u003e1991\u003c/span\u003e; Dahlsrud, \u003cspan citationid=\"CR4\" class=\"CitationRef\"\u003e2008\u003c/span\u003e), particularly ethical conduct and economic responsibility. Carroll (\u003cspan citationid=\"CR3\" class=\"CitationRef\"\u003e1991\u003c/span\u003e) outlines four dimensions of CSR; economic, legal, ethical, and philanthropic, which align closely with the nature of commitments expected from green sukuk issuers. These issuers must ensure that financial flows raised through green sukuk are directed toward ecological projects, while also offering investors a convincing financial return that reflects both economic and social value.\u003c/p\u003e\u003cp\u003eHowever, stakeholder theory and CSR expectations can be challenged when green sukuk fail to deliver tangible environmental benefits, such as reducing carbon emissions, increasing renewable energy generation, or improving air quality. Issuances that do not achieve these environmental outcomes suggest that the signals sent by sukuk issuers are either not credible or are credible only when issued by a certain group and imitated without substance by others. In such cases, funds are often redirected away from green objectives toward polluting projects to minimize financial loss leading to greenwashing and undermining the effectiveness of green sukuk.\u003c/p\u003e\u003cp\u003eRecent research confirms this complexity. For example, Ng and Tao (\u003cspan citationid=\"CR22\" class=\"CitationRef\"\u003e2016\u003c/span\u003e), Hall et al. (\u003cspan citationid=\"CR12\" class=\"CitationRef\"\u003e2018\u003c/span\u003e), and Sachs et al. (\u003cspan citationid=\"CR26\" class=\"CitationRef\"\u003e2019\u003c/span\u003e) emphasize that financial markets and institutional frameworks need to evolve to better channel capital toward sustainable projects, in line with stakeholder theory. These studies highlight structural barriers that can hinder the genuine alignment of financial actors\u0026rsquo; interests with those of society and the environment.\u003c/p\u003e\u003cp\u003eAlthough Benhamed and Gassouma (\u003cspan citationid=\"CR2\" class=\"CitationRef\"\u003e2023\u003c/span\u003e) do not directly address greenwashing, their analysis of Islamic mechanisms provides a useful lens through which this phenomenon can be critically examined. The authors show that Islamic finance promotes real economic outcomes through values such as transparency, social equity, and ethical accountability principles that stand in sharp contrast to the symbolic signaling typical of greenwashing. In this sense, just as Islamic mechanisms mitigate the inflationary effects of oil shocks by ensuring that financial practices are grounded in tangible socio-economic value, they could similarly reduce greenwashing by discouraging firms from making unsubstantiated environmental claims. This perspective aligns closely with stakeholder theory, which argues that firms must be accountable not only to shareholders but to a broad range of stakeholders, including communities, customers, and the environment. The Islamic approach reinforces this multi-stakeholder accountability by embedding social and ethical obligations into financial decisions.\u003c/p\u003e\u003cp\u003eMyers and Majluf (\u003cspan citationid=\"CR21\" class=\"CitationRef\"\u003e1984\u003c/span\u003e) argue that when a firm discloses its debt level and that debt is high, it signals financial robustness and the capacity to meet obligations. If another firm imitates this behaviour without the same financial strength, it ultimately exposes its weakness and fails. This renders debt disclosure a credible signal (Myers \u0026amp; Majluf, \u003cspan citationid=\"CR21\" class=\"CitationRef\"\u003e1984\u003c/span\u003e; Spence, \u003cspan citationid=\"CR30\" class=\"CitationRef\"\u003e1973\u003c/span\u003e). By analogy, when green sukuk are issued merely to replicate credible environmental signalling without real backing, such imitation constitutes greenwashing. In contrast, Li and Deng (\u003cspan citationid=\"CR16\" class=\"CitationRef\"\u003e2025\u003c/span\u003e) have argued that small firms and debt free, have more opportunity to increase the greenwashing. So, medias and supervision can reduce the greenwashing. Qian et al. (\u003cspan citationid=\"CR24\" class=\"CitationRef\"\u003e2025\u003c/span\u003e) also showed that financially distressed firms tend to send false signals regarding environmental protection, which increases greenwashing.\u003c/p\u003e\u003cp\u003eA polluted environment, within a context of information asymmetry (Jensen \u0026amp; Meckling, \u003cspan citationid=\"CR14\" class=\"CitationRef\"\u003e1976\u003c/span\u003e), can act as a signal prompting investors to issue green sukuk and encouraging creditors to purchase them on financial markets. This signal is generally credible and difficult to imitate, thereby motivating investors to proceed with green sukuk issuance. However, it does not necessarily guarantee that the funds raised will not be diverted toward non-green projects.\u003c/p\u003e\u003cp\u003eAdditionally, the carbon footprint specific to each sukuk issuer can serve as a signal of the firm\u0026rsquo;s emission levels. A low emission rate acts as an encouraging signal for green sukuk issuance. Yet, when this signal is not credible or credible but easy to imitate, it can lead to the misallocation of green funds toward non-environmentally friendly projects, ultimately resulting in greenwashing.\u003c/p\u003e\u003cp\u003eThis signalling dimension is confirmed by the work of Liu and Lai (\u003cspan citationid=\"CR17\" class=\"CitationRef\"\u003e2021\u003c/span\u003e) and Elliott and Zhang (\u003cspan citationid=\"CR8\" class=\"CitationRef\"\u003e2022\u003c/span\u003e), who show that the proliferation of green sukuk in certain emerging markets aims as much to strengthen image as to drive genuine change. However, the absence of strict certification and oversight mechanisms highlighted notably by Flammer (\u003cspan citationid=\"CR9\" class=\"CitationRef\"\u003e2020\u003c/span\u003e) and Larcker and Watts (\u003cspan citationid=\"CR15\" class=\"CitationRef\"\u003e2020\u003c/span\u003e) undermines this credibility and facilitates greenwashing. Furthermore, Alamgir and Cheng (\u003cspan citationid=\"CR1\" class=\"CitationRef\"\u003e2023\u003c/span\u003e) emphasize the need for transparent dialogue between issuers and investors to restore trust.\u003c/p\u003e\u003cp\u003eXu et al (\u003cspan citationid=\"CR31\" class=\"CitationRef\"\u003e2025\u003c/span\u003e), shown that when Chinese firms divulgate information about the green investment cost to public, they gain investors' trust and can manage its cost of capital more effectively, and consequently, will not be compelled to resort to greenwashing.\u003c/p\u003e\u003cp\u003eOn the other hand, Qian et al. (\u003cspan citationid=\"CR24\" class=\"CitationRef\"\u003e2025\u003c/span\u003e) showed that the involvement of investors and creditors in the equity of debt-issuing firms helps mitigate agency conflicts, lowers the cost of debt, and reduces the issuer\u0026rsquo;s incentive to manipulate green investments, thereby decreasing greenwashing.\u003c/p\u003e\u003cp\u003eGreenwashing tends to emerge under conditions of information asymmetry between issuers and investors. This lack of transparency creates an agency conflict: issuers aim to maximize the funds raised, while investors seek profitability. At the same time, investors may perceive ecological projects as risky and may overestimate their returns. They also face the risk that issuers will divert funds either to non-green projects or to projects not disclosed in the sukuk documentation, thereby increasing agency costs.\u003c/p\u003e\u003cp\u003eSukuk investors are often influenced by non-rational heuristic behaviours (Barberis \u0026amp; Thaler, 2003) in response to green sukuk signals. Their skepticism may stem from cognitive biases and representativeness heuristics, particularly due to prior assumptions about Islamic finance or green finance, leading them to associate these instruments with past projects that had similar labels but lacked credibility.\u003c/p\u003e\u003cp\u003eAs a result, creditor pressure on sukuk issuers may lead the latter to adopt shortcut behaviours. Rather than assessing project fundamentals, they may rely on representativeness heuristics, issuing sukuk modelled after previous green bonds with pre-set coupon structures, despite the fundamental difference that bond coupons are typically detached from project outcomes, while sukuk returns are meant to reflect the performance of the underlying assets. This dynamic results in sukuk becoming perceived as conventional bonds and their coupons being considered detached from actual project value.\u003c/p\u003e\u003cp\u003eThe studies by Musari \u0026amp; Hidayat (\u003cspan citationid=\"CR20\" class=\"CitationRef\"\u003e2023\u003c/span\u003e), Shalhoob (\u003cspan citationid=\"CR28\" class=\"CitationRef\"\u003e2023\u003c/span\u003e), and Yeşilyaprak (\u003cspan citationid=\"CR32\" class=\"CitationRef\"\u003e2023\u003c/span\u003e) illustrate the challenges related to governance and information asymmetries in Islamic markets, emphasizing that only strengthened environmental governance and rigorous control mechanisms can mitigate these risks and limit agency costs, in line with agency theory.\u003c/p\u003e\u003cp\u003eThe overestimation of profitability, fear of losses, and the rise in agency costs (Eisenhardt, \u003cspan citationid=\"CR7\" class=\"CitationRef\"\u003e1989\u003c/span\u003e; Shleifer \u0026amp; Vishny, \u003cspan citationid=\"CR29\" class=\"CitationRef\"\u003e1997\u003c/span\u003e) are key factors driving sukuk investors to demand higher returns, often in the form of elevated coupon rates. In this context, the coupon rate incorporates a \u0026ldquo;green premium\u0026rdquo; to compensate for environmental risk, as well as an \u0026ldquo;agency premium\u0026rdquo; related to potential manipulation by green investors, commonly referred to as a greenwashing premium.\u003c/p\u003e\u003cp\u003eIn this context, Gassouma (\u003cspan citationid=\"CR11\" class=\"CitationRef\"\u003e2019\u003c/span\u003e) examined accounting manipulation related to the emission of banking credit portfolios in Tunisia. Such manipulation may involve both green and non-green credit and can be conceptualized as either accrual-based greenwashing or credit portfolio manipulation. These practices reflect agency conflicts between managers and shareholders, often resulting in increased compensation demanded by stakeholders to offset perceived risks. This conflict can be mitigated through strong market discipline, supported by enhanced transparency and greater stakeholder involvement in the firm\u0026rsquo;s equity structure.\u003c/p\u003e\u003cp\u003eIn practice, green sukuk issuers often defend their legitimacy based on their Islamic and environmental reputations (Haniffa and Hudaib, \u003cspan citationid=\"CR13\" class=\"CitationRef\"\u003e2007\u003c/span\u003e), in order to earn the trust of green sukuk investors in financial markets. As a result, many bond issuers leverage the ethics of Islamic finance and the momentum of green markets to differentiate themselves from conventional bond issuers. However, this legitimacy can be deceptive. Issuers may use the labels \u0026ldquo;Islamic\u0026rdquo; and \u0026ldquo;Green\u0026rdquo; merely as marketing tools. This reflects a symbolic rather than transformative approach to sustainability (Marquis \u0026amp; Toffel, \u003cspan citationid=\"CR19\" class=\"CitationRef\"\u003e2012\u003c/span\u003e), which is symptomatic of greenwashing.\u003c/p\u003e\u003cp\u003eThe legitimacy of green sukuk is generally supported by an institutional framework involving sukuk commissions and green certification bodies. For a bond to qualify as a sukuk, it must be validated by a sukuk commission, which verifies the project details and the operating entity. The coupon rate should reflect the average return of the underlying project. For a sukuk to be considered \u0026ldquo;green,\u0026rdquo; it must also be certified by independent organizations that assign ESG scores to the issuer. In this context, greenwashing may arise from a symbolic desire to comply with environmental standards. As shown in the 2024 issuance records in the MENA region (Arab Today, 2024), such legitimacy is sometimes achieved at the expense of actual environmental rigor. In this context, Li and Deng (\u003cspan citationid=\"CR16\" class=\"CitationRef\"\u003e2025\u003c/span\u003e) showed that strong environmental protection legislation implemented in China reduces greenwashing.\u003c/p\u003e\u003cp\u003eGreenwashing may also occur through the acquisition of green certificates and carbon credits. By purchasing green certificates or tradable emission allowances on securities exchanges, sukuk issuers may obtain green certification, even if their projects are not genuinely ecological as a form of incentive. In this way, greenwashing can emerge through the creation of a \"green portfolio\" owned by the issuer, which grants a green label to their sukuk, regardless of whether the funds are directed toward sustainable projects.\u003c/p\u003e"},{"header":"Model Design","content":"\u003cdiv id=\"Sec3\" class=\"Section2\"\u003e\u003cdiv id=\"Sec4\" class=\"Section3\"\u003e\u003ch2\u003e1- Variables conception\u003c/h2\u003e\u003cp\u003eBuilding on the theoretical framework, this study adopts a quantitative explanatory approach to analyze the phenomenon of greenwashing in the green sukuk market. More specifically, it seeks to understand how certain firms may utilize these financial instruments for strategic environmental communication, without achieving real ecological transformation. The conceptual model is based on examining the relationship between environmental variables and the financial variables of green sukuk, interpreted through a set of theoretical lenses to uncover the underlying logics driving such practices.\u003c/p\u003e\u003cp\u003eEnvironmental variables such as Air pollution (PM2.5), CO₂ emissions, renewable energy production, and energy consumption serve as key indicators of ecological performance. However, in a greenwashing context, these indicators may be instrumentalized to maintain a green image without delivering tangible results. Greenwashing theory helps illuminate the gap between issuer claims and observed environmental outcomes. Meanwhile, legitimacy theory highlights how firms may display even weak or questionable environmental performance to retain social acceptance, while institutional theory draws attention to the absence or inconsistency of reporting standards, which enables opaque practices to persist.\u003c/p\u003e\u003cp\u003eRenewable energy production and reductions in fossil fuel consumption are often presented as justifications for issuing green sukuk. Yet, under stakeholder theory, such actions may be more a response to social or regulatory pressure than a sign of genuine commitment. This \u0026ldquo;greening\u0026rdquo; can thus remain superficial, especially when oversight and certification mechanisms are lacking.\u003c/p\u003e\u003cp\u003eFrom a financial perspective, two primary variables are considered: the coupon rate and the investment volume. The coupon rate reflects the return promised to investors. A mismatch can occur when the rate does not align with the actual environmental quality of the project\u0026mdash;a distortion explained by agency theory. It emphasizes the information asymmetry between the issuer (agent) and the investor (principal), which creates fertile ground for greenwashing. In such cases, issuers may redirect funds to less sustainable projects while continuing to benefit from the market\u0026rsquo;s perception of greenness. Furthermore, behavioural finance theory suggests that investors guided by bounded rationality, may rely on simplified signals (such as the \u0026ldquo;green sukuk\u0026rdquo; label) without critically evaluating actual environmental performance.\u003c/p\u003e\u003cp\u003eThe issuance volume of green sukuk is another strategic lever. Signalling theory offers insight into how firms may attempt to enhance their green credibility by multiplying so-called \u0026ldquo;green\u0026rdquo; issuances, even in the absence of meaningful project quality. This strategy aligns with a logic of symbolic legitimation, where the act of issuing green sukuk takes precedence over their environmental effectiveness. In the absence of strict verification standards as noted in institutional theory such signals may be socially accepted without rigorous scrutiny.\u003c/p\u003e\u003cp\u003eThus, the combination of environmental and financial variables is examined through the lens of multiple theories from organizational and financial behaviour to better understand the mechanisms of greenwashing in Islamic green finance. This integrated theoretical approach helps identify areas of informational vulnerability, social pressure, and symbolic manipulation that facilitate the misappropriation of green sukuk, undermining their original objectives.\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\n\u003ch3\u003e2- Sample\u003c/h3\u003e\n\u003cp\u003eThe panel data regression method is employed to evaluate the impact of green sukuk issuance on environmental variables by comparing temporal changes between a treatment group (countries utilizing green sukuk) and a control group (countries not utilizing green sukuk). This approach is designed to isolate the causal effect of green sukuk on key environmental indicators across the selected countries (Indonesia, Malaysia, Saudi Arabia, the United Arab Emirates (UAE), and T\u0026uuml;rkiye).\u003c/p\u003e\n\u003ch3\u003e3- Data Source\u003c/h3\u003e\n\u003cp\u003eData for this research will be obtained from the following sources: Green Sukuk data, including Sukuk Amount and Sukuk Coupon, will be obtained from financial institutions issuing sukuk and financial authorities Refinitiv Eikon. The Environmental variable data (will be obtained from world bank data.\u003c/p\u003e\u003cp\u003e\u003cdiv class=\"gridtable\"\u003e\u003ctable float=\"Yes\" id=\"Tab1\" border=\"1\"\u003e\u003ccaption language=\"En\"\u003e\u003cdiv class=\"CaptionNumber\"\u003eTable 1\u003c/div\u003e\u003cdiv class=\"CaptionContent\"\u003e\u003cp\u003eDescriptive statistics of variables\u003c/p\u003e\u003c/div\u003e\u003c/caption\u003e\u003ccolgroup cols=\"6\"\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c1\" colnum=\"1\"\u003e\u003c/div\u003e\u003cdiv align=\"char\" char=\".\" class=\"colspec\" colname=\"c2\" colnum=\"2\"\u003e\u003c/div\u003e\u003cdiv align=\"char\" char=\".\" class=\"colspec\" colname=\"c3\" colnum=\"3\"\u003e\u003c/div\u003e\u003cdiv align=\"char\" char=\".\" class=\"colspec\" colname=\"c4\" colnum=\"4\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c5\" colnum=\"5\"\u003e\u003c/div\u003e\u003cdiv align=\"char\" char=\".\" class=\"colspec\" colname=\"c6\" colnum=\"6\"\u003e\u003c/div\u003e\u003cthead\u003e\u003ctr\u003e\u003cth align=\"left\" colname=\"c1\"\u003e\u003cp\u003eVariables\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c2\"\u003e\u003cp\u003eObs\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c3\"\u003e\u003cp\u003eMean\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c4\"\u003e\u003cp\u003eStd. Dev\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c5\"\u003e\u003cp\u003eMin\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c6\"\u003e\u003cp\u003eMax\u003c/p\u003e\u003c/th\u003e\u003c/tr\u003e\u003c/thead\u003e\u003ctbody\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eAir pollution\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e70\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e34.39641\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e16.246\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e16.43742\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e67.67732\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eRenewable energy\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e155\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e12.33787\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e16.24293\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e0\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e59.18\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eCO2 emission\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e155\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e12.27579\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.5869876\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e10.90806\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e13.31346\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eEnergy use\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e126\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e7.805894\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.9558079\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e6.294429\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e9.36691\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eSukuk\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e113\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e17.23914\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e3.81335\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e10.68411\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e21.63956\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eCoupon\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e113\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e6.514528\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e7.443448\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e0.037\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e27.5\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003c/tbody\u003e\u003c/colgroup\u003e\u003c/table\u003e\u003c/div\u003e\u003c/p\u003e\u003cp\u003e\u003cdiv class=\"BlockQuote\"\u003e\u003cp\u003e\u003cb\u003eAir_pollution\u003c/b\u003e : PM2.5 air pollution, mean annual exposure (micrograms per cubic meter)\u003c/p\u003e\u003c/div\u003e\u003c/p\u003e\u003cp\u003e\u003cstrong\u003eCO2\u003c/strong\u003e\u003cp\u003eCO2 emissions (kt)\u003c/p\u003e\u003c/p\u003e\u003cp\u003e\u003cdiv class=\"BlockQuote\"\u003e\u003cp\u003e\u003cb\u003eEnergy use\u003c/b\u003e : Energy use (kg of oil equivalent per capita)\u003c/p\u003e\u003cp\u003e\u003cb\u003eRenewable-energy\u003c/b\u003e : Renewable energy consumption (% of total final energy consumption)\u003c/p\u003e\u003c/div\u003e\u003c/p\u003e\u003cp\u003e\u003cstrong\u003eSukuk\u003c/strong\u003e\u003cp\u003eAverage Amount Issued for Green Sukuk (% of the total per year\u003c/p\u003e\u003c/p\u003e\u003cp\u003e\u003cdiv class=\"BlockQuote\"\u003e\u003cp\u003e\u003cb\u003eCoupon\u003c/b\u003e : Average Green Sukuk Coupon Rate (% of the total per year\u003c/p\u003e\u003c/div\u003e\u003c/p\u003e\n\u003ch3\u003e3- Models\u003c/h3\u003e\n\u003cdiv id=\"Sec7\" class=\"Section2\"\u003e\u003cp\u003eWe have two parts of models: The first, describe the effect of environmental variables on sukuk characteristics (the amount of investment and the sukuk return called Yield coupon).\u003cdiv id=\"Equa\" class=\"Equation\"\u003e\u003cdiv format=\"TEX\" class=\"mathdisplay\" id=\"FileID_Equa\" name=\"EquationSource\"\u003e\n$$\\:\\varvec{S}\\varvec{u}\\varvec{k}\\varvec{u}\\varvec{k}\\:\\varvec{a}\\varvec{m}\\varvec{o}\\varvec{u}\\varvec{n}\\varvec{t}=\\:{\\varvec{a}}_{0}+{\\varvec{a}}_{1}\\:\\times\\:\\varvec{A}\\varvec{i}\\varvec{r}\\:\\varvec{p}\\varvec{o}\\varvec{l}\\varvec{l}\\varvec{u}\\varvec{t}\\varvec{i}\\varvec{o}\\varvec{n}+\\:\\:{\\varvec{a}}_{2}\\times\\:\\varvec{C}\\varvec{o}2\\:\\varvec{e}\\varvec{m}\\varvec{i}\\varvec{s}\\varvec{s}\\varvec{i}\\varvec{o}\\varvec{n}+{\\varvec{a}}_{3}\\times\\:\\:\\varvec{e}\\varvec{n}\\varvec{e}\\varvec{r}\\varvec{g}\\varvec{y}\\:\\varvec{u}\\varvec{s}\\varvec{e}+{\\varvec{a}}_{4}\\times\\:\\varvec{r}\\varvec{e}\\varvec{n}\\varvec{e}\\varvec{w}\\varvec{a}\\varvec{b}\\varvec{l}\\varvec{e}\\:\\varvec{e}\\varvec{n}\\varvec{e}\\varvec{r}\\varvec{g}\\varvec{y}$$\u003c/div\u003e\u003c/div\u003e\u003cdiv id=\"Equb\" class=\"Equation\"\u003e\u003cdiv format=\"TEX\" class=\"mathdisplay\" id=\"FileID_Equb\" name=\"EquationSource\"\u003e\n$$\\:\\varvec{S}\\varvec{u}\\varvec{k}\\varvec{u}\\varvec{k}\\:\\varvec{c}\\varvec{o}\\varvec{u}\\varvec{p}\\varvec{o}\\varvec{n}=\\:{\\varvec{a}}_{0}+{\\varvec{a}}_{1}\\:\\times\\:\\varvec{A}\\varvec{i}\\varvec{r}\\:\\varvec{p}\\varvec{o}\\varvec{l}\\varvec{l}\\varvec{u}\\varvec{t}\\varvec{i}\\varvec{o}\\varvec{n}+\\:\\:{\\varvec{a}}_{2}\\times\\:\\varvec{C}\\varvec{o}2\\:\\varvec{e}\\varvec{m}\\varvec{i}\\varvec{s}\\varvec{s}\\varvec{i}\\varvec{o}\\varvec{n}+{\\varvec{a}}_{3}\\times\\:\\varvec{C}\\varvec{O}2\\:\\varvec{e}\\varvec{n}\\varvec{e}\\varvec{r}\\varvec{g}\\varvec{y}\\:\\varvec{u}\\varvec{s}\\varvec{e}+{\\varvec{a}}_{4}\\times\\:\\varvec{r}\\varvec{e}\\varvec{n}\\varvec{e}\\varvec{w}\\varvec{a}\\varvec{b}\\varvec{l}\\varvec{e}\\:\\varvec{e}\\varvec{n}\\varvec{e}\\varvec{r}\\varvec{g}\\varvec{y}$$\u003c/div\u003e\u003c/div\u003e\u003c/p\u003e\u003cp\u003e\u003cdiv class=\"gridtable\"\u003e\u003ctable float=\"Yes\" id=\"Tab2\" border=\"1\"\u003e\u003ccaption language=\"En\"\u003e\u003cdiv class=\"CaptionNumber\"\u003eTable 2\u003c/div\u003e\u003cdiv class=\"CaptionContent\"\u003e\u003cp\u003eImpact of environnemental variables on green sukuk\u003c/p\u003e\u003c/div\u003e\u003c/caption\u003e\u003ccolgroup cols=\"4\"\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c1\" colnum=\"1\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c2\" colnum=\"2\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c3\" colnum=\"3\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c4\" colnum=\"4\"\u003e\u003c/div\u003e\u003cthead\u003e\u003ctr\u003e\u003cth align=\"left\" colname=\"c1\"\u003e\u003cp\u003eCountry\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c2\"\u003e\u003cp\u003eDependent Variable\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c3\"\u003e\u003cp\u003eSukuk Regression\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c4\"\u003e\u003cp\u003eCoupon Regression\u003c/p\u003e\u003c/th\u003e\u003c/tr\u003e\u003c/thead\u003e\u003ctbody\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\" morerows=\"3\" rowspan=\"4\"\u003e\u003cp\u003e\u003cb\u003eGlobal\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eAir pollution\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e3.173e-08***\u003c/p\u003e\u003cp\u003e(1.457e-09)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e7.056e\u0026thinsp;+\u0026thinsp;00***\u003c/p\u003e\u003cp\u003e(8.179e-01)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eco2 emission\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e7.908e-05**\u003c/p\u003e\u003cp\u003e(4.236e-05)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e1.639e\u0026thinsp;+\u0026thinsp;04*\u003c/p\u003e\u003cp\u003e(1.155e\u0026thinsp;+\u0026thinsp;04)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eEnergy use\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e4.172e-06***\u003c/p\u003e\u003cp\u003e(8.135e-07)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e9.965e\u0026thinsp;+\u0026thinsp;02***\u003c/p\u003e\u003cp\u003e(2.315e\u0026thinsp;+\u0026thinsp;02)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eRenewable energy\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.474e-08***\u003c/p\u003e\u003cp\u003e(4.577e-09)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e3.838e\u0026thinsp;+\u0026thinsp;00***\u003c/p\u003e\u003cp\u003e(1.237e\u0026thinsp;+\u0026thinsp;00)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\" morerows=\"3\" rowspan=\"4\"\u003e\u003cp\u003e\u003cb\u003eIndonesia\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eAir pollution\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e8.778e-08**\u003c/p\u003e\u003cp\u003e(3.753e-09)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e4.491e\u0026thinsp;+\u0026thinsp;00**\u003c/p\u003e\u003cp\u003e(1.920e-01)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eco2 emission\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.467e-03**\u003c/p\u003e\u003cp\u003e(1.662e-04)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e7.506e\u0026thinsp;+\u0026thinsp;04**\u003c/p\u003e\u003cp\u003e(8.501e\u0026thinsp;+\u0026thinsp;03)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eEnergy use\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e3.109e-06*\u003c/p\u003e\u003cp\u003e(1.526e-07)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e1.591e\u0026thinsp;+\u0026thinsp;02*\u003c/p\u003e\u003cp\u003e(7.809e\u0026thinsp;+\u0026thinsp;00)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eRenewable energy\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.579e-07**\u003c/p\u003e\u003cp\u003e(1.405e-08)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e8.081e\u0026thinsp;+\u0026thinsp;00**\u003c/p\u003e\u003cp\u003e(7.190e-01)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\" morerows=\"3\" rowspan=\"4\"\u003e\u003cp\u003e\u003cb\u003eMalaysia\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eAir pollution\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e9.641e-07***\u003c/p\u003e\u003cp\u003e(5.504e-08)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e4.152e\u0026thinsp;+\u0026thinsp;00***\u003c/p\u003e\u003cp\u003e(2.370e-01)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eco2 emission\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e7.990e-03***\u003c/p\u003e\u003cp\u003e(1.022e-03)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e3.441e\u0026thinsp;+\u0026thinsp;04***\u003c/p\u003e\u003cp\u003e(4.402e\u0026thinsp;+\u0026thinsp;03)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eEnergy use\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.134e-04**\u003c/p\u003e\u003cp\u003e(9.020e-06)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e4.883e\u0026thinsp;+\u0026thinsp;02*\u003c/p\u003e\u003cp\u003e(3.884e\u0026thinsp;+\u0026thinsp;01)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eRenewable energy\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.836e-07***\u003c/p\u003e\u003cp\u003e(3.454e-08)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e7.906e-01***\u003c/p\u003e\u003cp\u003e(1.488e-01)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\" morerows=\"3\" rowspan=\"4\"\u003e\u003cp\u003e\u003cb\u003eSaudi Arabia\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eAir pollution\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e4.553e-08**\u003c/p\u003e\u003cp\u003e(1.564e-09)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e3.875e\u0026thinsp;+\u0026thinsp;01**\u003c/p\u003e\u003cp\u003e(1.331e\u0026thinsp;+\u0026thinsp;00)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eco2 emission\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e2.873e-04*\u003c/p\u003e\u003cp\u003e(3.601e-05)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e2.445e\u0026thinsp;+\u0026thinsp;05*\u003c/p\u003e\u003cp\u003e(3.065e\u0026thinsp;+\u0026thinsp;04)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eEnergy use\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e4.167e-06***\u003c/p\u003e\u003cp\u003e(2.729e-07)\u003c/p\u003e\u003cp\u003e15.27\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e3.546e\u0026thinsp;+\u0026thinsp;03***\u003c/p\u003e\u003cp\u003e(2.322e\u0026thinsp;+\u0026thinsp;02)\u003c/p\u003e\u003cp\u003e15.27\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eRenewable energy\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.187e-11**\u003c/p\u003e\u003cp\u003e(2.876e-12)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e1.011e-02***\u003c/p\u003e\u003cp\u003e(2.448e-03)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\" morerows=\"3\" rowspan=\"4\"\u003e\u003cp\u003e\u003cb\u003eUAE\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eAir pollution\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e6.528e-08**\u003c/p\u003e\u003cp\u003e(9.027e-10)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e1.086e\u0026thinsp;+\u0026thinsp;01***\u003c/p\u003e\u003cp\u003e(1.502e-01)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eco2 emission\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.989e-04**\u003c/p\u003e\u003cp\u003e(2.554e-05)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e3.309e\u0026thinsp;+\u0026thinsp;04***\u003c/p\u003e\u003cp\u003e(4.249e\u0026thinsp;+\u0026thinsp;03)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eEnergy use\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.330e-05*\u003c/p\u003e\u003cp\u003e(7.717e-07)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e2.212e\u0026thinsp;+\u0026thinsp;03**\u003c/p\u003e\u003cp\u003e(1.284e\u0026thinsp;+\u0026thinsp;02)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eRenewable energy\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.416e-10***\u003c/p\u003e\u003cp\u003e(1.930e-11)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e2.355e-02***\u003c/p\u003e\u003cp\u003e(3.211e-03)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\" morerows=\"3\" rowspan=\"4\"\u003e\u003cp\u003e\u003cb\u003eTurkiye\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eAir pollution\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.538e-07**\u003c/p\u003e\u003cp\u003e(1.897e-09)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e4.003e\u0026thinsp;+\u0026thinsp;00*\u003c/p\u003e\u003cp\u003e(4.937e-02)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eco2 emission\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.534e-03***\u003c/p\u003e\u003cp\u003e(1.366e-04)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e3.991e\u0026thinsp;+\u0026thinsp;04*\u003c/p\u003e\u003cp\u003e(3.554e\u0026thinsp;+\u0026thinsp;03)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eEnergy use\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e7.722e-06**\u003c/p\u003e\u003cp\u003e(4.306e-07)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e2.009e\u0026thinsp;+\u0026thinsp;02**\u003c/p\u003e\u003cp\u003e(1.120e\u0026thinsp;+\u0026thinsp;01)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cb\u003eRenewable energy\u003c/b\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e8.883e-08*\u003c/p\u003e\u003cp\u003e(7.556e-09)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e2.311e\u0026thinsp;+\u0026thinsp;00***\u003c/p\u003e\u003cp\u003e(1.966e-01)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003c/tbody\u003e\u003c/colgroup\u003e\u003c/table\u003e\u003c/div\u003e\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec8\" class=\"Section2\"\u003e\u003ch2\u003e*significant at 10% level ** significant at 5% level *** significant at 1% level\u003c/h2\u003e\u003cdiv id=\"Sec9\" class=\"Section3\"\u003e\u003ch2\u003e( ) std deviation\u003c/h2\u003e\u003cp\u003eThe second models test the paradoxical effect of sukuk. They test the effect of each environmental factor on sukuk amount and coupon rate. We obtain 4 models:\u003cdiv id=\"Equc\" class=\"Equation\"\u003e\u003cdiv format=\"TEX\" class=\"mathdisplay\" id=\"FileID_Equc\" name=\"EquationSource\"\u003e\n$$\\:\\begin{array}{c}Air\\:pollution\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:={\\varvec{a}}_{0}\\times\\:\\varvec{S}\\varvec{u}\\varvec{k}\\varvec{u}\\varvec{k}\\:\\varvec{a}\\varvec{m}\\varvec{o}\\varvec{u}\\varvec{n}\\varvec{t}+{\\varvec{a}}_{2}\\times\\:\\varvec{c}\\varvec{o}\\varvec{u}\\varvec{p}\\varvec{o}\\varvec{n}\\\\\\:Renewable\\:energy\\:\\:\\:={\\varvec{a}}_{0}\\times\\:\\varvec{S}\\varvec{u}\\varvec{k}\\varvec{u}\\varvec{k}\\:\\varvec{a}\\varvec{m}\\varvec{o}\\varvec{u}\\varvec{n}\\varvec{t}+{\\varvec{a}}_{2}\\times\\:\\varvec{c}\\varvec{o}\\varvec{u}\\varvec{p}\\varvec{o}\\varvec{n}\\\\\\:\\begin{array}{c}\\:\\\\\\:\\:\\:\\:Co2\\:emission\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:=\\:{\\varvec{a}}_{0}\\times\\:\\varvec{S}\\varvec{u}\\varvec{k}\\varvec{u}\\varvec{k}\\:\\varvec{a}\\varvec{m}\\varvec{o}\\varvec{u}\\varvec{n}\\varvec{t}+{\\varvec{a}}_{2}\\times\\:\\varvec{c}\\varvec{o}\\varvec{u}\\varvec{p}\\varvec{o}\\varvec{n}\\\\\\:\\begin{array}{c}\\:Energy\\:use\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:\\:={\\varvec{a}}_{0}\\times\\:\\varvec{S}\\varvec{u}\\varvec{k}\\varvec{u}\\varvec{k}\\:\\varvec{a}\\varvec{m}\\varvec{o}\\varvec{u}\\varvec{n}\\varvec{t}+{\\varvec{a}}_{2}\\times\\:\\varvec{c}\\varvec{o}\\varvec{u}\\varvec{p}\\varvec{o}\\varvec{n}\\\\\\:\\\\\\:\\:\\end{array}\\end{array}\\end{array}$$\u003c/div\u003e\u003c/div\u003e\u003c/p\u003e\u003cp\u003e\u003cdiv class=\"gridtable\"\u003e\u003ctable float=\"Yes\" id=\"Tab3\" border=\"1\"\u003e\u003ccaption language=\"En\"\u003e\u003cdiv class=\"CaptionNumber\"\u003eTable 3\u003c/div\u003e\u003cdiv class=\"CaptionContent\"\u003e\u003cp\u003eImpact of green sukuk on environmental variables\u003c/p\u003e\u003c/div\u003e\u003c/caption\u003e\u003ccolgroup cols=\"6\"\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c1\" colnum=\"1\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c2\" colnum=\"2\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c3\" colnum=\"3\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c4\" colnum=\"4\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c5\" colnum=\"5\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c6\" colnum=\"6\"\u003e\u003c/div\u003e\u003cthead\u003e\u003ctr\u003e\u003cth align=\"left\" colname=\"c1\"\u003e\u003cp\u003eCountry\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c2\"\u003e\u003cp\u003eDependent Variable\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c3\"\u003e\u003cp\u003ePollution\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c4\"\u003e\u003cp\u003eCO2\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c5\"\u003e\u003cp\u003eEnergy use\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c6\"\u003e\u003cp\u003eRenewable\u003c/p\u003e\u003c/th\u003e\u003c/tr\u003e\u003c/thead\u003e\u003ctbody\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\" morerows=\"1\" rowspan=\"2\"\u003e\u003cp\u003eGlobal\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eSukuk amount\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e2.928e\u0026thinsp;+\u0026thinsp;07**\u003c/p\u003e\u003cp\u003e2.047e\u0026thinsp;+\u0026thinsp;06\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e3.136e\u0026thinsp;+\u0026thinsp;02**\u003c/p\u003e\u003cp\u003e(1.721e\u0026thinsp;+\u0026thinsp;02)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e4.59e\u0026thinsp;+\u0026thinsp;02**\u003c/p\u003e\u003cp\u003e(1.072e\u0026thinsp;+\u0026thinsp;04)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e-1.585e\u0026thinsp;+\u0026thinsp;06*\u003c/p\u003e\u003cp\u003e(1.677e\u0026thinsp;+\u0026thinsp;06)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003ecoupon\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e8.169e-02***\u003c/p\u003e\u003cp\u003e(1.723e-02)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e1.303e-06***\u003c/p\u003e\u003cp\u003e(1.449e-06)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e2.418e-05***\u003c/p\u003e\u003cp\u003e(9.019e-05)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e-3.651e-03***\u003c/p\u003e\u003cp\u003e(1.412e-02)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\" morerows=\"1\" rowspan=\"2\"\u003e\u003cp\u003eIndonesia\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eSukuk amount\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.256e-06**\u003c/p\u003e\u003cp\u003e(1.809e-05)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e5.598e-11**\u003c/p\u003e\u003cp\u003e(8.711e-10)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e1.502e-08*\u003c/p\u003e\u003cp\u003e(4.507e-07)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e-4.304e-07***\u003c/p\u003e\u003cp\u003e(1.204e-05)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003ecoupon\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e2.467e-14***\u003c/p\u003e\u003cp\u003e(3.409e-13)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e1.087e-18***\u003c/p\u003e\u003cp\u003e(1.641e-17)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e2.912e-16***\u003c/p\u003e\u003cp\u003e(8.493e-15)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e-8.402e-15***\u003c/p\u003e\u003cp\u003e(2.269e-13)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\" morerows=\"1\" rowspan=\"2\"\u003e\u003cp\u003eMalaysia\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eSukuk amount\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.423e-09**\u003c/p\u003e\u003cp\u003e(4.008e-05)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e2.774e-10**\u003c/p\u003e\u003cp\u003e(2.684e-09)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e5.190e-09*\u003c/p\u003e\u003cp\u003e(3.426e-07)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e-8.409e-11*\u003c/p\u003e\u003cp\u003e(5.743e-05)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003ecoupon\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.878e-16***\u003c/p\u003e\u003cp\u003e(9.309e-12)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e6.40e-17***\u003c/p\u003e\u003cp\u003e(6.235e-16)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e1.207e-15***\u003c/p\u003e\u003cp\u003e(7.957e-14)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e-8.83e-18***\u003c/p\u003e\u003cp\u003e(1.334e-11)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\" morerows=\"1\" rowspan=\"2\"\u003e\u003cp\u003eSaudi Arabia\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eSukuk amount\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e2.354e-08***\u003c/p\u003e\u003cp\u003e(9.553e-05)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e1.502e-09***\u003c/p\u003e\u003cp\u003e(1.062e-08)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e1.397e-09***\u003c/p\u003e\u003cp\u003e(1.418e-06)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e-2.290e-06***\u003c/p\u003e\u003cp\u003e(5.252e-02)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003ecoupon\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e4.066e-17***\u003c/p\u003e\u003cp\u003e(1.121e-13)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e1.766e-18***\u003c/p\u003e\u003cp\u003e(1.247e-17)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e1.478e-18***\u003c/p\u003e\u003cp\u003e(1.664e-15)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e-9.840e-15***\u003c/p\u003e\u003cp\u003e(6.165e-11)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\" morerows=\"1\" rowspan=\"2\"\u003e\u003cp\u003eUAE\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eSukuk amount\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e4.449e-07**\u003c/p\u003e\u003cp\u003e(3.960e-06)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e1.609e-10***\u003c/p\u003e\u003cp\u003e(3.955e-10)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e9.273e-10**\u003c/p\u003e\u003cp\u003e(1.095e-08)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e-8.469e-08*\u003c/p\u003e\u003cp\u003e(2.654e-04)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003ecoupon\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e2.699e-15***\u003c/p\u003e\u003cp\u003e(2.231e-14)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e9.649e-19***\u003c/p\u003e\u003cp\u003e(2.229e-18)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e5.346e-18***\u003c/p\u003e\u003cp\u003e(6.170e-17)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e-9.753e-16***\u003c/p\u003e\u003cp\u003e(1.496e-12)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\" morerows=\"1\" rowspan=\"2\"\u003e\u003cp\u003eTurkiye\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eSukuk amount\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e-2.910e-09*\u003c/p\u003e\u003cp\u003e(3.203e-05)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e-1.492e-10*\u003c/p\u003e\u003cp\u003e(4.755e-09)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e-1.863e-09**\u003c/p\u003e\u003cp\u003e(1.301e-06)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e7.451e-09*\u003c/p\u003e\u003cp\u003e(1.895e-05)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003ecoupon\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e-1.735e-16***\u003c/p\u003e\u003cp\u003e(1.242e-12)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e-5.746e-18***\u003c/p\u003e\u003cp\u003e(1.845e-16)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e-5.551e-17***\u003c/p\u003e\u003cp\u003e(5.047e-14)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e4.441e-16***\u003c/p\u003e\u003cp\u003e(7.353e-13)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003c/tbody\u003e\u003c/colgroup\u003e\u003c/table\u003e\u003c/div\u003e\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv id=\"Sec10\" class=\"Section2\"\u003e\u003ch2\u003e*significant at 10% level ** significant at 5% level *** significant at 1% level\u003c/h2\u003e\u003cdiv id=\"Sec11\" class=\"Section3\"\u003e\u003ch2\u003e( ) std deviation\u003c/h2\u003e"},{"header":"Main Results","content":"\u003cdiv id=\"Sec12\" class=\"Section4\"\u003e\u003cp\u003eReferring to Table\u0026nbsp;\u003cspan refid=\"Tab2\" class=\"InternalRef\"\u003e2\u003c/span\u003e, we observe that across all countries, air pollution and carbon (CO₂) emissions have a positive and significant effect on both green sukuk investment and associated coupon rates. In contexts of heightened pollution, green sukuk issuers use these instruments as a signal of their environmental commitment, consistent with stakeholder theory. Issuers seek to protect their legitimacy through ethical actions, materialized by the issuance of green sukuk intended to finance environmentally responsible projects with the aim of attracting climate-conscious investors. This strategic use of environmental signals aligns with Spence (\u003cspan citationid=\"CR30\" class=\"CitationRef\"\u003e1973\u003c/span\u003e) and Myers \u0026amp; Majluf (\u003cspan citationid=\"CR21\" class=\"CitationRef\"\u003e1984\u003c/span\u003e), who highlight how signalling can be manipulated in contexts of asymmetry, potentially leading to greenwashing when not backed by real environmental performance (Qian et al., \u003cspan citationid=\"CR24\" class=\"CitationRef\"\u003e2025\u003c/span\u003e).\u003c/p\u003e\u003cp\u003eAt the same time, high pollution levels heighten investors' perception of risk. In response, investors demand an environmental risk premium reflecting a higher coupon rate to compensate for exposure to uncertain ecological conditions.\u003c/p\u003e\u003cp\u003eMoreover, investors in Islamic green sukuk often exhibit heuristic behaviour driven by representativeness bias based on past risky sukuk or availability bias, shaped by their personal beliefs and preconceived notions about Islamic finance. As a result, they tend to include a risk premium in the offered coupon rate. This aligns with Musari \u0026amp; Hidayat (\u003cspan citationid=\"CR20\" class=\"CitationRef\"\u003e2023\u003c/span\u003e), who show that weak governance structures in Islamic financial markets intensify agency conflicts and reduce credibility of environmental claims.\u003c/p\u003e\u003cp\u003eThese investors also fear opportunistic behaviour from issuers, particularly the diversion of green funds to unrelated or non-sustainable projects. Consequently, they may seek stronger oversight through specialized monitoring institutions, which further increases agency costs and is reflected in higher coupon rates.\u003c/p\u003e\u003cp\u003eBoth the intensity of non-renewable energy use and the level of renewable energy production are found to have a positive and significant impact on sukuk issuance and coupon rates. Thus, a combination of high non-renewable energy use and increased renewable energy production leads to greater volumes of green sukuk and higher associated coupon payments. The use of non-renewable energy acts as a credible signal by firms aiming to transition toward clean energy, such as renewable energy production through green sukuk issuance. In the presence of information asymmetry, investors financing these projects as creditors incur agency costs and, therefore, demand higher compensation in the form of green premiums to hedge against climate-related risk and the revenue volatility of renewable energy projects.\u003c/p\u003e\u003cp\u003eTable\u0026nbsp;\u003cspan refid=\"Tab3\" class=\"InternalRef\"\u003e3\u003c/span\u003e shows that green sukuk issuance and associated coupon rates also have a positive effect on pollution and carbon emissions for the entire sample except for T\u0026uuml;rkiye. This finding contradicts the expected effectiveness of green finance and can be explained by the presence of greenwashing risks. Some projects financed by green sukuk are not genuinely ecological in nature, leading to misallocation of funds and a worsening of pollution levels. In such cases, the signal conveyed by the development of green sukuk markets was either not credible or was imitated by conventional bond issuers treating sukuk as standard, non-green instruments. This reflects the concerns raised by Flammer (\u003cspan citationid=\"CR9\" class=\"CitationRef\"\u003e2020\u003c/span\u003e) and Larcker \u0026amp; Watts (\u003cspan citationid=\"CR15\" class=\"CitationRef\"\u003e2020\u003c/span\u003e) about insufficient verification and the tendency of firms to mimic green instruments without environmental rigor.\u003c/p\u003e\u003cp\u003eOn the other hand, real investors in green projects may have issued misleading signals to green financial markets, reflecting a lack of environmental awareness. Furthermore, sukuk investors did not lower their return expectations; on the contrary, they increased them, which reinforces the emergence of a greenwashing phenomenon.\u003c/p\u003e\u003cp\u003eSimilarly, a report from the Climate Bonds Initiative (2022) highlights that the absence of transparency in the selection and monitoring of green projects can dilute the true environmental impact of issued instruments, including sukuk.\u003c/p\u003e\u003cp\u003eAdditionally, behavioural finance theory suggests that, in a context of growing skepticism about the effectiveness of green projects, investors may behave irrationally guided by heuristic thinking and limited experience, such as the \u0026ldquo;law of small numbers\u0026rdquo; and thus demand higher returns.\u003c/p\u003e\u003cp\u003eEnvironmental governance emphasizes the need for clear regulation and strict criteria to ensure that green sukuk actually finance sustainable projects. The World Bank (2020), in its analysis of sustainable Islamic finance, underscores this point by recommending a reinforced governance framework for green sukuk issuance due to risks of institutional-level misappropriation. This misuse driven by institutions, can harm the legitimacy of sukuk issuers who capitalize on the \u0026ldquo;Islamic Green\u0026rdquo; label without delivering real environmental impact.\u003c/p\u003e\u003cp\u003eReturning to Table\u0026nbsp;\u003cspan refid=\"Tab3\" class=\"InternalRef\"\u003e3\u003c/span\u003e, the expected reciprocal relationship between energy intensity and green sukuk issuance is not confirmed. High volumes of green sukuk issuance, accompanied by rising interest rates, tend to accelerate the use of non-renewable energy and discourage investment in renewable energy. This suggests that the signal of renewable energy production was either not credible or was imitated by other issuers amid information asymmetry. As a result, the financed projects were not genuinely ecological nor did they guarantee renewable energy use. This misdirection increases environmental risk and agency costs, leading to higher coupon rates and reinforcing the presence of greenwashing. These dynamics reflect the findings of Li \u0026amp; Deng (\u003cspan citationid=\"CR16\" class=\"CitationRef\"\u003e2025\u003c/span\u003e), who show that weak regulation enables small firms or opportunistic actors to imitate credible green signals without real backing.\u003c/p\u003e\u003cp\u003eMoreover, the increase in coupon rates does not serve social welfare nor reflect an ecological premium. Instead, the green premium is captured by investors rather than being distributed to nature or the community making these sukuk more comparable to conventional bonds and ignoring the principles of corporate social responsibility toward the environment. This divergence from CSR principles echoes the analysis by Benhamed \u0026amp; Gassouma (\u003cspan citationid=\"CR2\" class=\"CitationRef\"\u003e2023\u003c/span\u003e), who stress the importance of ethical alignment in Islamic finance beyond profitability.\u003c/p\u003e\u003cp\u003eIn traditional bond markets, rising risk leads to higher risk premiums and thus higher coupon rates to satisfy investors. In sukuk markets, however, investor expectations of returns tend to be based more on the profitability of green projects than on genuine environmental intent or cognitive evaluation making sukuk resemble conventional bonds.\u003c/p\u003e\u003cp\u003eAhmad et al. (2024) point out that well-structured sukuk can contribute to improved air quality. However, in this case, the ecological premium is captured by investors rather than being reinvested into social or environmental value, further aligning green sukuk with conventional bonds.\u003c/p\u003e\u003cp\u003eIn contrast, in the case of T\u0026uuml;rkiye, the issuance of sukuk with high coupon rates serves as a credible signal that cannot be easily imitated by other issuers. This signal has been associated with reductions in pollution and carbon emissions, along with improved air quality, successfully preserving issuer legitimacy through ecological awareness and commitment to nature. Although these sukuk contributed to environmental improvement, investors still demanded higher returns due to agency costs borne by issuers, resulting in a risk premium to guard against potential greenwashing, hence the high coupon rates.\u003c/p\u003e\u003cp\u003eMoreover, green sukuk issued in T\u0026uuml;rkiye have encouraged renewable energy production and discouraged fossil fuel usage. Issued at competitive rates, these sukuk directed green funds toward ecological investments that produce less carbon and not excessive returns while sharing the ecological premium. These sukuk tend to attract more engaged investors, who are less driven by pure profit and more committed to funding genuinely sustainable projects. As a result, they contribute to pollution reduction and improved air quality, reinforcing the societal value of participatory Islamic finance. This reinforces the conclusion of Alamgir \u0026amp; Cheng (\u003cspan citationid=\"CR1\" class=\"CitationRef\"\u003e2023\u003c/span\u003e) and Xu et al. (\u003cspan citationid=\"CR31\" class=\"CitationRef\"\u003e2025\u003c/span\u003e), who show that transparency and active dialogue between issuers and investors lead to better outcomes and restore confidence in green instruments.\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003c/div\u003e"},{"header":"Conclusion","content":"\u003cp\u003eThis article highlights the paradox inherent in financial theories as applied to the issuance of green sukuk, particularly stakeholder theory, which calls for ecological awareness toward financial actors; signalling theory, which relies on the transmission of credible, hard-to-imitate signals to gain investor trust; and agency theory\u0026mdash;which emphasizes the importance of information disclosure between the sukuk issuer and investor regarding the nature and features of the green project, as well as the rationality of investors.\u003c/p\u003e\u003cp\u003eThese theories, however, may be challenged or even manipulated for the benefit of green sukuk issuers. An issuer may divert green sukuk funds toward non-ecological projects while incentivizing investors with high coupon payments. This undermines the credibility of the signals conveyed at issuance and allows non-credible issuers to imitate carbon footprints or replicate the Islamic green sukuk label without substance\u0026mdash;thereby damaging the issuer\u0026rsquo;s legitimacy. As a result, stakeholder theory no longer ensures ecological responsibility, signalling theory becomes irrelevant, and the trust between issuer and investor deteriorates. Consequently, agency theory also fails to hold, and agency costs emerge, leading to higher coupon rates.\u003c/p\u003e\u003cp\u003eThis leads to the creation of sukuk instruments that fail to comply with both the principles of Islamic finance and the ecological objectives of green finance. They increasingly resemble conventional bonds and embody a phenomenon of greenwashing.\u003c/p\u003e\u003cp\u003eThe empirical analysis assessed the impact of environmental and energy-related factors on the issuance volume and coupon levels of green sukuk and vice versa, using data from financial markets in MENA and ASEAN countries (Saudi Arabia, the UAE, Indonesia, Malaysia, and T\u0026uuml;rkiye) over the period 1990\u0026ndash;2022.\u003c/p\u003e\u003cp\u003eThe results show a clear presence of greenwashing in green sukuk issuance in all countries except T\u0026uuml;rkiye. In these countries, sukuk issuers use national indicators such as pollution levels, carbon emissions, and renewable energy production as signals to attract green-conscious investors. In order to escape agency oversight, these issuers often offer high coupon rates. On the other side, investors, faced with potential information asymmetry, demand a green premium as part of their cost of capital, further raising the coupon rate.\u003c/p\u003e\u003cp\u003eAlthough green sukuk are intended to reduce pollution and promote renewable energy use, in practice their issuance was associated with increasing pollution and a disincentive for clean energy paired with higher coupons. This suggests a diversion of green funds to non-ecological projects, a disregard for the legitimacy of the sukuk, and a lack of environmental awareness from issuers. As a result, agency costs borne by investors increase, reflected in higher coupon demands, reinforcing a cycle of greenwashing that ignores both ecological and Islamic legitimacy.\u003c/p\u003e\u003cp\u003eIn contrast, T\u0026uuml;rkiye demonstrated results that favoured ecological awareness. Green sukuk issuance there did not exhibit signs of greenwashing. The issuance of sukuk with lower coupons contributed to reductions in pollution and carbon emissions, and to increased renewable energy production. This confirms that issuers in T\u0026uuml;rkiye respected stakeholder theory by adopting environmentally responsible practices, thereby preserving their green legitimacy within the community.\u003c/p\u003e"},{"header":"Declarations","content":"\u003cp\u003e\u003cstrong\u003eDeclaration Funding\u0026nbsp;\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThe authors gratefully acknowledge the financial support provided by \u003cstrong\u003eKing Faisal University\u003c/strong\u003e for this research project. The funding covered various aspects of the study, including data collection, analysis, and manuscript preparation. This support played a key role in enabling the successful completion and submission of the research for publication. The authors confirm that the funder had no role in the design of the study, the interpretation of data, or the decision to publish the results.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eClinical Trial Declaration:\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThis study does not involve any clinical trial and therefore does not require registration in a clinical trial registry. The research is based on financial and economic data and does not include human or animal participants.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eConsent to Participate Declaration:\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eAll participants involved in this study provided their informed consent prior to participation. The purpose of the study was clearly explained, and participation was entirely voluntary. The participants had the right to withdraw at any time without any consequences.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eCompeting Interests Declaration:\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThe authors declare that there are no financial, professional, or personal conflicts of interest that could have influenced the research presented in this manuscript. The study was conducted independently, and no external entity influenced the design, analysis, interpretation, or publication of the findings. All authors affirm that they have no affiliations or relationships that could be perceived as potential sources of bias.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eData Availability Declaration\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThe data that support the findings of this study are available from the corresponding author upon reasonable request. Due to confidentiality agreements and restrictions related to proprietary or institutional data access, the dataset is not publicly available. However, summary statistics and analytical code can be provided for academic and non-commercial purposes.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eEthics Declaration\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThis study does not involve any experiments on humans or animals and therefore does not require ethical approval. The research is based entirely on publicly available financial and economic data. As such, it falls outside the scope of institutional ethics committee review.\u003c/p\u003e"},{"header":"References","content":"\u003col\u003e\n\u003cli\u003eAlamgir, M., \u0026amp; Cheng, M.-C. (2023). Do Green Bonds Play a Role in Achieving Sustainability? \u003cem\u003eSustainability, 15\u003c/em\u003e(13), 10177. https://doi.org/10.3390/su151310177\u003c/li\u003e\n\u003cli\u003e\u003cstrong\u003eBenhamed, A., \u0026amp; Gassouma, M. 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Job Market Signaling. \u003cem\u003eThe Quarterly Journal of Economics\u003c/em\u003e, 87(3), 355\u0026ndash;374. https://doi.org/10.2307/1882010\u003c/li\u003e\n\u003cli\u003e\u003cstrong\u003eXu, X., Li, Z., \u0026amp; Liu, F.\u003c/strong\u003e (2025). \u003cem\u003eGreenwashing in ESG information disclosure: An intertemporal signaling game approach\u003c/em\u003e. \u003cem\u003eInternational Journal of Production Economics, 287\u003c/em\u003e, 109674. https://doi.org/10.1016/j.ijpe.2025.109674\u003c/li\u003e\n\u003cli\u003eYeşilyaprak, M. (2023). Sustainable Development And Green Sukuk: The Case Of Turkiye. In \u003cem\u003eSustainability Practices: Cases from Businesses and Charities\u003c/em\u003e (pp. 80\u0026ndash;104). https://doi.org/10.53478/TUBA.978-625-8352-51-1.ch04\u003c/li\u003e\n\u003c/ol\u003e"}],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":true,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":false,"highlight":"","institution":"","isAcceptedByJournal":true,"isAuthorSuppliedPdf":false,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":false,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"discover-sustainability","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":false,"externalIdentity":"disu","sideBox":"Learn more about [Discover Sustainability](https://www.springer.com/43621)","snPcode":"","submissionUrl":"","title":"Discover Sustainability","twitterHandle":"","acdcEnabled":true,"dfaEnabled":true,"editorialSystem":"stoa","reportingPortfolio":"Discover Series","inReviewEnabled":true,"inReviewRevisionsEnabled":true},"keywords":"","lastPublishedDoi":"10.21203/rs.3.rs-6917316/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-6917316/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThis study investigates the potential greenwashing phenomena associated with green sukuk issuances across MENA and ASEAN countries from 1990 to 2022. Drawing on stakeholder theory, signalling theory, and agency theory, we explore whether green sukuk genuinely reflect environmentally responsible financing or are misused to attract investors through misleading green claims.\u003c/p\u003e\u003cp\u003eOur empirical analysis examines the bidirectional relationship between environmental and energy indicators (e.g., pollution, carbon emissions, non-renewable energy use, renewable energy adoption) and both the issuance volume and coupon rates of green sukuk.\u003c/p\u003e\u003cp\u003eThe findings reveal a widespread pattern of greenwashing in all countries studied\u0026mdash;except Turkey, where issuers exploit environmental signals to issue green sukuk while diverting funds to non-ecological projects, often offering high coupon rates to offset agency risks and information asymmetry. This practice undermines the legitimacy of green sukuk from both Islamic finance and environmental perspectives rejecting the role of the stakeholder\u0026rsquo;s theory leading to having an ecological conscience toward environment. In contrast, Turkey demonstrates a credible commitment to environmental responsibility, with green sukuk linked to lower pollution, reduced emissions, and increased renewable energy use, validating stakeholder theory and preserving issuer legitimacy. These results call for stricter standards and greater transparency in green sukuk markets to ensure alignment with true green principles.\u003c/p\u003e","manuscriptTitle":"The greenwaching testing of Green Sukuk in MENA and ASEAN countries","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2025-07-25 17:09:42","doi":"10.21203/rs.3.rs-6917316/v1","editorialEvents":[{"type":"communityComments","content":0},{"type":"decision","content":"Revision requested","date":"2025-08-19T04:37:50+00:00","index":"","fulltext":""},{"type":"editorInvitedReview","content":"","date":"2025-08-05T11:49:54+00:00","index":"hide","fulltext":""},{"type":"editorInvitedReview","content":"","date":"2025-08-05T08:45:07+00:00","index":"hide","fulltext":""},{"type":"editorInvitedReview","content":"","date":"2025-08-02T04:28:41+00:00","index":"hide","fulltext":""},{"type":"editorInvitedReview","content":"","date":"2025-08-01T09:28:52+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"81298217279905859395015121977431701552","date":"2025-07-26T15:02:28+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"232024567115466464845541969614692704470","date":"2025-07-25T12:19:01+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"151580820893184258795460791211736744260","date":"2025-07-25T11:11:50+00:00","index":"hide","fulltext":""},{"type":"editorInvitedReview","content":"","date":"2025-07-25T04:45:20+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"138077159641744652525353076772341254352","date":"2025-07-24T20:41:04+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"70383621721155729882367347383824331111","date":"2025-07-23T14:19:27+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"46668535053178214334624746548915367327","date":"2025-07-23T12:13:01+00:00","index":"hide","fulltext":""},{"type":"reviewersInvited","content":"","date":"2025-07-23T12:04:59+00:00","index":"","fulltext":""},{"type":"editorInvited","content":"","date":"2025-07-15T07:01:52+00:00","index":"","fulltext":""},{"type":"editorAssigned","content":"","date":"2025-06-30T12:23:54+00:00","index":"","fulltext":""},{"type":"checksComplete","content":"","date":"2025-06-30T12:22:13+00:00","index":"","fulltext":""},{"type":"submitted","content":"Discover Sustainability","date":"2025-06-17T20:32:04+00:00","index":"","fulltext":""}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"discover-sustainability","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":false,"externalIdentity":"disu","sideBox":"Learn more about [Discover Sustainability](https://www.springer.com/43621)","snPcode":"","submissionUrl":"","title":"Discover Sustainability","twitterHandle":"","acdcEnabled":true,"dfaEnabled":true,"editorialSystem":"stoa","reportingPortfolio":"Discover Series","inReviewEnabled":true,"inReviewRevisionsEnabled":true}}],"origin":"","ownerIdentity":"b3e3ba2f-b5f4-4ecd-a00a-d68be55e0393","owner":[],"postedDate":"July 25th, 2025","published":true,"recentEditorialEvents":[],"rejectedJournal":[],"revision":"","amendment":"","status":"published-in-journal","subjectAreas":[],"tags":[],"updatedAt":"2026-04-27T16:11:29+00:00","versionOfRecord":{"articleIdentity":"rs-6917316","link":"https://doi.org/10.1007/s43621-026-02997-1","journal":{"identity":"discover-sustainability","isVorOnly":false,"title":"Discover Sustainability"},"publishedOn":"2026-04-22 15:59:58","publishedOnDateReadable":"April 22nd, 2026"},"versionCreatedAt":"2025-07-25 17:09:42","video":"","vorDoi":"10.1007/s43621-026-02997-1","vorDoiUrl":"https://doi.org/10.1007/s43621-026-02997-1","workflowStages":[]},"version":"v1","identity":"rs-6917316","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-6917316","identity":"rs-6917316","version":["v1"]},"buildId":"8U1c8b4HqxoKbykW_rLl7","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}