ABSTRACT
The financial market has observed a growing interest in sustainability among players in the Islamic finance industry, both from the public and private sectors. This is reflected in various activities ranging from regulatory developments to launching environmental, social, and governance (ESG) funds, as witnessed by the fast-paced adoption of ESG and green sukuk. Social inequality, poverty, environmental degradation, and climate change on a global scale have all increased dramatically during the previous ten years due to social and environmental issues. For the affected countries, dealing with these problems has become extremely expensive and is typically a trade-off for their national development funds. This has been further reinforced, as the COVID-19 pandemic has crippled communities and economies. With the significant alignment between Islamic finance and sustainability principles, there is a strong possibility that Islamic finance instruments will be a viable long-term financing solution for these issues. The purpose of this chapter is to review the ESG and Islamic finance concepts to identify common and divergent characteristics and to investigate the role of Islamic banks in promoting growth and financial stability within the Islamic finance space.
