The role of Islamic banking in achieving ESG and SDG sustainable development goals

Dejanović Mirjana (Fakultet za projektni i inovacioni menadžment, dr Petar Jovanović, Beograd), mrmirjanadejanovic@gmail.com

This study examines the role of Islamic banking in advancing environmental, social, and governance (ESG) principles and the United Nations Sustainable Development Goals (SDGs), with particular attention to ethical investment practices and Shariah-compliant financial instruments that promote sustainability. A qualitative approach is applied, based on a review of relevant literature and a case study analysis of Islamic banking practices in Malaysia, Indonesia, Saudi Arabia, and the United Arab Emirates, with particular focus on green sukuk, Islamic social finance, and microfinance initiatives. The findings indicate that Islamic banking, grounded in ethics, justice, the prohibition of interest, and social responsibility, naturally aligns with ESG values and SDG objectives, contributing to clean energy, responsible infrastructure, poverty alleviation, and social inclusion. Challenges remain, including regulatory gaps, differing Shariah interpretations, and limited awareness among stakeholders. The study highlights the importance of standardisation, investor education, and the use of digital technologies to expand Islamic banking’s impact on sustainable development. At the same time, it underscores the need for stronger collaboration among regulators, financial institutions, and Shariah boards. By combining theoretical insights and practical examples, the research underlines the strategic role of Islamic banking in achieving the SDGs, particularly in affordable and clean energy, sustainable cities, and climate action, with green sukuk emerging as a key instrument for financing projects that align ethical principles with global sustainability goals.

Keywords: Islamic finance, ESG, sustainable development goals (SDGs), green sukuk, ethical investment.