Integration of ESG (Environmental, Social, Governance) Criteria in Islamic Finance: A Systematic Review
Keywords:
ESG, ; Islamic Finance, Maqasid al-sharia, Sustainable Development, Transparency
Abstract
The integration of Environmental, Social, and Governance (ESG) factors in Islamic finance is methodically examined in this paper, with a focus on how Sharia rules connect with sustainability objectives. Examining the benefits and difficulties of implementing ESG principles in Islamic financial institutions is the primary goal. This study identifies important findings from recent research and examines their implications for Islamic finance using a systematic literature review (SLR) based on the PRISMA approach. According to the analysis, there are still a lot of obstacles to overcome, especially when it comes to standardized reporting and regulatory guidelines, even though ESG closely resembles Maqasid al-sharia in that it promotes social welfare and ethical governance. The findings demonstrate how increasing ESG practice transparency can boost market competitiveness, draw in socially conscious investors, and advance the Sustainable Development Goals (SDGs). The results of this study provide a conceptual framework for Islamic financial institutions looking to implement Sharia-compliant ESG practices, laying the groundwork for future empirical studies and policy creation.
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Yi, P. T. T. (2023). Faith-Based Investing, Stewardship, and Sustainability: A Comparative Analysis. Erasmus Law Review, 16(3), 114–127. https://doi.org/10.5553/ELR.000258
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Abu Bakar, N., Abdelsalam, O., Taamouti, A., & Elmasry, A. (2023). The market uncertainty of ethically compliant equity: An integrated screening approach. Journal of International Financial Markets, Institutions and Money, 86. https://doi.org/10.1016/j.intfin.2023.101759
Akhtar, S., Akhtar, F., Jahromi, M., & John, K. (2023). Volatility linkages and value gains from diversifying with Islamic assets. Journal of International Business Studies, 54(8), 1495–1528. https://doi.org/10.1057/s41267-023-00641-y
Boudawara, Y., Toumi, K., Wannes, A., Hussainey, K., & Shari, K. H. (2023). Shari’ah Governance Quality and Environmental, Social and Governance Performance in Islamic Banks. A Cross-Country Evidence. https://hal.science/hal-03925935v1
Buallay, A. (2020). Sustainability reporting and firm’s performance: Comparative study between manufacturing and banking sectors. International Journal of Productivity and Performance Management, 69(3), 431–445.
Buallay, A. M., Mohammad, R., Wadi, A., Kukreja, G., & Hassan, A. A. (2020). Evaluating ESG Disclosures of Islamic Bank: Evidence Form The Organization of Islamic Cooperation Members. In Int. J. Innovation and Sustainable Development (Vol. 14, Issue 3).
Choudhury, M. A., Hossain, M. S., & Mohammad, M. T. (2019). Islamic finance instruments for promoting long-run investment in the light of the well-being criterion (maslaha). Journal of Islamic Accounting and Business Research, 10(2), 315–339. https://doi.org/10.1108/JIABR-11-2016-0133
Dai, Y. (2024). Sustainable InvestingAnd Islamic Finance: Evidance Form The Organisation of Islamic Cooperation (OIC) Countries. In 41 ISRA International Journal of Islamic Finance • (Vol. 16, Issue 1). http://creativecommons.org/licences/by/4.0/legalcode
Elamin, M. O. I. (2023). Advancing Ethical and Sustainable Economy: Islamic Finance Solutions for Environmental, Social, & Economic Challenges in the Digital Age. International Journal of Membrane Science and Technology, 10(5), 408–429. https://doi.org/10.15379/ijmst.v10i5.2515
Fithria, A., & Darma, S. (2024). ESG and Credit Risk: Evidence from Indonesian and Malaysian Banks. Jurnal REKSA: Rekayasa Keuangan, Syariah Dan Audit, 11(2), 193–205. https://doi.org/10.12928/jreksa.v11i2.11252
Harahap, B., Risfandy, T., & Futri, I. N. (2023). Islamic Law, Islamic Finance, and Sustainable Development Goals: A Systematic Literature Review. Sustainability, 15(8), 6626. https://doi.org/10.3390/su15086626
Harahap, D., Maripatul Uula, M., & Nasution, A. A. (2022). Environmental, Social, Governance (ESG) and Islamic Finance: A Review. http://journals.smartinsight.id/index.php/MS
Hasan, I., Singh, S., & Kashiramka, S. (2024). CSR initiatives and stakeholder engagement amidst COVID-19 pandemic: insights using content analysis and literature review. Social Responsibility Journal, 20(3), 503–537. https://doi.org/10.1108/SRJ-09-2022-0376
Kabir Hassan, M., Chiaramonte, L., Dreassi, A., Paltrinieri, A., & Piserà, S. (2021). The crossroads of ESG and religious screening on firm risk. Research in International Business and Finance, 58. https://doi.org/10.1016/j.ribaf.2021.101500
Lee, S. P., & Isa, M. (2024). ESG And ESg Controversies on Firm Risks in Emerging Markets: The Moderating Roles of Sharīʿah Screening And Legal Origin. ISRA International Journal of Islamic Finance, 16(1), 127–149. https://doi.org/10.55188/ijif.v16i1.627
Lobre-Lebraty, K., & Heimann, M. (2024). More than morals: a simulation that supports sustainable management education. Management Decision, 62(7), 2214–2232. https://doi.org/10.1108/MD-06-2023-0979
Mohd Zain, F. A., Muhamad, S. F., Abdullah, H., Sheikh Ahmad Tajuddin, S. A. F., & Wan Abdullah, W. A. (2024). Integrating environmental, social and governance (ESG) principles with Maqasid al-Shariah: a blueprint for sustainable takaful operations. International Journal of Islamic and Middle Eastern Finance and Management, 17(3), 461–484. https://doi.org/10.1108/IMEFM-11-2023-0422
Muhamad, S. F., Zain, F. A. M., Samad, N. S. A., Azira, A. H., & Yasoa’, M. R. (2022). Measuring Sustainable Performance of Islamic Banks: Integrating the principles of Environmental, Social and Governance (ESG) and Maqasid Shari’ah. IOP Conference Series: Earth and Environmental Science, 1102(1). https://doi.org/10.1088/1755-1315/1102/1/012080
Nik Abdullah, N. A. I., & Haron, R. (2022). ESG Reporting Practices Among Islamic Banks: A Global Perspective. IIUM Law Journal, 30(S2), 01–36. https://doi.org/10.31436/iiumlj.v30iS2.755
Paltrinieri, A., Dreassi, A., Migliavacca, M., & Piserà, S. (2020). Islamic finance development and banking ESG scores: Evidence from a cross-country analysis. Research in International Business and Finance, 51. https://doi.org/10.1016/j.ribaf.2019.101100
Rahman, S. A., Ahmad, N. H., & Arshad, N. C. (2024). Macroeconomic and Firm-Specific Effects on Islamic Deposits Sustainability. Paper Asia, 40(2b), 12–19. https://doi.org/10.59953/paperasia.v40i2b.84
Ryandono, M. N. H., Widiastuti, T., Mawardi, I., Al Mustofa, M. U., Robani, A., Fanani, S., Dewi, E. P., Atiya, N., Rusanti, E., & Nisa’, M. (2024). Constructing an Environmental, Social, And Governance (ESG) Index for Islamic Social Finance Institutions: Empirical Investigation from Indonesia. Journal of Ecohumanism, 3(4), 2620–2645. https://doi.org/10.62754/joe.v3i4.3781
Sá, J. C., Oliveira, A. R., Carvalho, J. D., Santos, G., & Silva, F. (2023). A New Conceptual Model for Excellence in Business Towards Sustainable Development. Quality Innovation Prosperity, 27(2), 33–60. https://doi.org/10.12776/qip.v27i2.1866
Shahid, M., Sulub, Y. A., Mohtesham, M. M. J., & Abdullah, M. (2024). Analyzing the commonalities between Islamic social finance and sustainable development goals. International Journal of Ethics and Systems, 40(2), 381–394. https://doi.org/10.1108/IJOES-04-2022-0082
Sugianto, S., Hasriani, H., & Noor, R. M. (2024). Innovations in Risk Measurement and Management for Strategic Financing Decisions. Advances in Management & Financial Reporting, 2(2), 59–71. https://doi.org/10.60079/amfr.v2i2.263
Tariqullah Khan, T. K. (2019). Reforming Islamic Finance for Achieving Sustainable Development Goals. Journal of King Abdulaziz University Islamic Economics, 32(1), 3–21. https://doi.org/10.4197/Islec.32-1.1
Yesuf, A. J., & Aassouli, D. (2020). Exploring synergies and performance evaluation between Islamic funds and socially responsible investment (SRIs) in light of the Sustainable Development Goals (SDGs). Heliyon, 6(8). https://doi.org/10.1016/j.heliyon.2020.e04562
Yi, P. T. T. (2023). Faith-Based Investing, Stewardship, and Sustainability: A Comparative Analysis. Erasmus Law Review, 16(3), 114–127. https://doi.org/10.5553/ELR.000258
Yunus, Y. A., & Nanda, S. (2024). Exploring Sustainable Finance: A Qualitative Inquiry into Responsible Investment and ESG Risk Evaluation. Golden Ratio of Finance Management, 4(1), 01–13. https://doi.org/10.52970/grfm.v4i1.429
Published
2024-11-30
How to Cite
Jery Wardiman, M Topit Hidayat, Zul Afdal, & Nofriansyah. (2024). Integration of ESG (Environmental, Social, Governance) Criteria in Islamic Finance: A Systematic Review. LAA MAISYIR : Jurnal Ekonomi Islam, 1(1), 344-363. https://doi.org/10.24252/lamaisyir.v1i1.53133
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