Md. Touhidul Alam Khan, PhD :
In an era where responsible investing has become paramount, ESG principles – focusing on Environmental, Social, and Governance factors – have emerged as a vital framework guiding trillions of dollars in assets worldwide. For Islamic finance, an industry steeped in ethical and Shariah-compliant principles, this shift is not merely a trend but an affirmation of its core values. It presents a timely opportunity to deepen its commitment to responsible investing while reinforcing its divine foundations.
The widespread adoption of ESG in global markets reflects growing concerns about climate change, social inequality, and corporate misconduct. According to the Global Sustainable Investment Alliance, global sustainable investment assets hit an impressive US$35.3 trillion in 2023, with projections indicating this figure could rise beyond US$40 trillion by 2030, as per Bloomberg. This demonstrates an evolving recognition that financial success must go hand-in-hand with positive societal and environmental impact.
For Islamic finance, ESG principles are inherently aligned with its foundational ethos of ethical investing and social justice. Yet, underpinning this alignment is a richer, divine blueprint-Maqasid Shariah. Rooted in classical Islamic jurisprudence, Maqasid Shariah encapsulates the overarching objectives aiming to protect and promote human well-being. According to Imam al-Ghazali, these include safeguarding faith (Din), life (Nafs), intellect (Aql), progeny (Nasl), and wealth (Mal). Scholar Ibn Ashur elaborates that the primary purpose of Shariah is to achieve goodness and provide solutions for contemporary challenges, emphasising that everything promoting these objectives benefits society, while their abandonment leads to harm.
These Islamic objectives not only resonate with ESG goals but extend beyond them, addressing spiritual, moral, and societal dimensions that ESG frameworks often overlook. For example, the environmental aspect of ESG is about sustainability and resource conservation-yet Maqasid Shariah elevates environmental stewardship to a divine duty. The Quran explicitly condemns wastefulness (7:31), and Prophet Muhammad’s teachings encourage planting trees and caring for nature even amidst apocalyptic scenarios. Such teachings position environmental responsibility as a spiritual obligation, not just an ethical choice.
Similarly, the social pillar of ESG concerns human rights, community development, and equity. Maqasid Shariah deepens this focus through mechanisms like Zakat, Waqf, and Islamic microfinance. These tools foster social justice, eradicate poverty, and ensure inclusive prosperity-embodying a moral imperative that complements and enhances traditional ESG goals.
In governance, ESG stresses ethical leadership and transparency. Islamic governance models go further by embedding divine accountability into financial practices-guided by principles like Amanah (trust) and Gharar (excessive uncertainty). These are designed to uphold morality, morality, and spiritual integrity in financial dealings, thus aligning with the broader Maqasid objective of ensuring moral stewardship.
The practical synergy between ESG and Maqasid Shariah is already catalyzing innovation within Islamic finance. Green Sukuk, for instance, finance renewable energy projects, fulfilling ethical wealth preservation and environmental objectives. Countries like Malaysia, Indonesia, and Saudi Arabia have demonstrated leadership through issuance of green bonds, aligning economic development with sustainability.
Furthermore, Sustainability Reporting Index (SRI) funds that adhere to both ESG and Shariah principles attract ethical investors seeking institutions committed to long-term moral and social responsibility. Takaful, Islamic mutual insurance, exemplifies this alignment by promoting mutual cooperation, social welfare, and financial inclusion, directly fulfilling the Maqasid’s emphasis on protecting progeny and life.
Recent data highlights the promising momentum of this convergence: ESG-compliant Islamic funds now total US$8 billion in assets under management, and ESG Sukuk issuance stands at US$35.9 billion. Regulatory frameworks across 50 jurisdictions are increasingly shaping a global landscape that supports responsible and ethical investing. However, transparency remains a significant hurdle; current ESG reporting by Islamic banks averages only 48%, underscoring the urgent need for standardized disclosure standards aligned with Shariah principles.
While the prospects are promising, challenges remain. Standardization of ESG metrics within Islamic finance is necessary to enable comparability. Reconciling profitability with purpose, educating institutions on long-term ESG integration, and harmonizing regulatory standards across borders are essential steps toward fully realizing this vision.
In conclusion, the convergence of ESG principles and Maqasid Shariah offers Islamic finance a unique opportunity to lead the global sustainability agenda. While ESG provides a practical framework, it is the divine and holistic vision of Maqasid Shariah that can truly underpin sustainable, ethical development. By aligning environmental stewardship, social justice, and moral governance with Islamic objectives, the industry can not only fulfill its spiritual and moral mandate but also set a benchmark in responsible finance for the world to follow. As responsible investing gains prominence, Islamic finance stands at the forefront, ready to guide the way toward a sustainable future grounded in divine wisdom and ethical excellence.
(Dr. Md Touhidul Alam Khan is the Managing Director & CEO of NRBC Bank PLC and fellow cost & management accountant from Institute of Cost & Management Accountants of Bangladesh (ICMAB). He is also the first certified sustainability reporting assurer (CSRA) in Bangladesh).
