Environmental, Social, and Governance (ESG) framework in Islamic Economics and Finance

Budianto, Eka Wahyu Hestya ORCID: https://orcid.org/0000-0002-4199-2865 (2026) Environmental, Social, and Governance (ESG) framework in Islamic Economics and Finance. PT. Afanin Media Utama, Malang. ISBN 978-634-7671-55-4 UNSPECIFIED : UNSPECIFIED.

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Abstract

The growing prominence of Environmental, Social, and Governance (ESG) considerations in global finance reflects a profound shift in how economic performance is evaluated. Financial systems are increasingly expected to generate not only profit, but also environmental stewardship, social justice, and institutional integrity. Within this evolving landscape, Islamic economics and finance offer a deeply rooted ethical and theological foundation that resonates strongly with sustainability-oriented frameworks. This book explores the intersection between ESG principles and the Islamic moral economy, presenting a comprehensive analytical and practical framework for their integration.
The early part of this work examines the conceptual foundations of ESG and its evolution within global financial discourse, followed by an exploration of the ethical architecture of Islamic economics. It highlights the convergence between ESG values and the normative objectives embedded in Islamic teachings, particularly the pursuit of justice, balance, and collective well-being. ESG is analyzed not merely as a technical screening tool, but as a contemporary manifestation of values-based finance that aligns with the moral aspirations of Islamic economic thought.
A philosophical and theological grounding is then developed through the principles of tawhid (unity), khalifah (stewardship), amanah (trust), ‘adl (justice), ihsan (ethical excellence), and maslahah (public interest). Sustainability is framed as a moral imperative rooted in the unity of creation and the responsibility of humankind to preserve balance. These foundations provide the intellectual scaffolding for understanding environmental care, social responsibility, and governance accountability as integral components of faith-based economic behavior.
The environmental dimension is explored through discussions of ecological ethics, responsible resource management, the prohibition of harm, sustainable production and consumption, and climate accountability across generations. Particular attention is given to environmental risk management and the integration of measurable environmental indicators within Shariah-compliant financial structures. The social dimension addresses welfare, equity, inclusion, labor dignity, financial accessibility, and redistributive instruments such as zakat and waqf, emphasizing stakeholder-oriented economic relationships and social impact measurement.
Governance is treated as a pillar of ethical accountability, encompassing transparency, disclosure, oversight mechanisms, Shariah governance structures, risk management, and corporate integrity. The framework of maqasid al-Shariah further deepens the analysis by linking ESG objectives to the protection of faith, life, intellect, wealth, and social continuity. ESG is positioned as a contemporary instrument capable of operationalizing these higher objectives within modern financial systems.
Comparative analysis between ESG screening and Shariah screening highlights areas of overlap and divergence, addressing methodological challenges and proposing pathways toward integrated frameworks. Practical applications are examined in Islamic banking operations and capital markets, including sustainable financing, ESG disclosure practices, green and social sukuk, ethical investment funds, and investor behavior. Islamic social finance is also integrated into the discussion, demonstrating how zakat, waqf, and microfinance contribute to inclusive and sustainable development.
Risk management perspectives illustrate how ESG functions as both an ethical compass and a risk mitigation framework, encompassing environmental, social, governance, and Shariah-related risks. Regulatory and policy dimensions are explored through global developments, harmonization efforts, supervisory challenges, and strategic roadmaps for sustainable Islamic finance. Measurement, reporting, and disclosure frameworks are critically assessed, alongside issues of data quality, transparency, and stakeholder trust.
The work also addresses conceptual ambiguities, risks of greenwashing, institutional capacity constraints, and scholarly critiques, while outlining future directions that emphasize innovation, digital transformation, education, global collaboration, and research advancement. Through this comprehensive exploration, the book seeks to contribute to the development of a just, sustainable, and falah-oriented economic system grounded in both ethical conviction and institutional rigor.

Item Type:	Book
Keywords:	Environmental; Social; Governance; ESG; Islamic Economics and Finance
Subjects:	14 ECONOMICS > 1402 Applied Economics > 140207 Financial Economics
Divisions:	Faculty of Economics > Department of Islamic Banking
Depositing User:	Eka Wahyu Hestya Budianto
Date Deposited:	14 Jul 2026 09:08

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