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Islam & Sustainability | Islamic Finance & the Sustainable Development Goals (SDGs)

Updated: Sep 30, 2022

Welcome to this article. I’m glad you’re here. These articles are about sustainability, philosophy, psychology, history, religion, evolution, etc. If this is too abstract, subscribe here for more actionable content.

[In the vast Muslim world, embedding sustainability takes place by grafting it onto existing religious rootstock, then drip irrigating it to conserve water.

Unlike the West, in the Muslim world, religion is the axis around which other things, including sustainability, revolve.

This article sketches out an interesting - and promising - intersection of Islam, Islamic finance, and the Sustainable Development Goals.]

Note: this topic has also been covered in this video.

What do finance, sustainability, and religion have in common? In the Muslim world – a LOT, as I recently discovered while working for a Middle Eastern client in the finance sector.

The West is secular, which means that integration of sustainability into a business/corporate/government body takes place on top of the existing civil, regulatory, and legal foundations.

Religion is not on the table.

The Muslim world is largely religious and non-secular; accordingly, integration of sustainability takes place on top of the existing religious, and then, also, civil, regulatory, and legal foundation.

Religion is definitely on the table … in some countries, it’s the table.

Ten years ago in the West (at least in Australia), embedding sustainability into business operations was new. Today, it’s the norm across SMEs and corporations that embed it through the ESG - Environmental, Social, and Governance criteria using a variety of standards and frameworks, e.g. ISO, GRI, IR, CDP, TCFD, CDSB and other.

In the Muslim world, embedding ESG criteria is on the rise.


For a mixed bag of reasons:

· Many Muslim countries (especially those in the Middle East e.g. Algeria, Tunisia, Jordan, Kuwait, Yemen) are in the freshwater-scarce desert regions, with freshwater sources depleting. Desalinization appears to be the only solution, but that is energy intensive and expensive, therefore out of reach for the poorer countries.

· In the dry regions, climate change is making already harsh living conditions worse, e.g. desertification, soil erosion, heatwaves and dust storms, droughts, and low soil fertility.

· In the wet regions, e.g. Bangladesh delta, rising sea levels combined with more frequent and intense storms are pushing millions out of low-lying flood-prone areas. Farmers growing crops – often their sole source of income – are being either (a) literally washed away, and/or (b) have their soil ruined by saltwater, which makes it infertile. No longer able to sustain their families, they join millions of others in the slums of Dhaka.

Bangladesh – the Netherlands of Asia – has no water barriers.

· Island countries, e.g. Maldives, are being swallowed by the rising ocean. Where do people escape to? To the highest “peak” of 2m above the sea level?

· Relative to other groups, the Muslim population is growing and is predicted to grow fast (from 1.7 billion in 2014 to 2.2 billion by 2030). This drives the need for resources, e.g. water.

· Sheiks, kings, emirs, presidents, and ministers must address the basic needs of people and their children, e.g. enough water, fertile soil to grow food, clean air, and job opportunities. That involves addressing climate change, which impacts everything and everyone across society, and those in charge are expected to act. Many do. Saudi Arabia’s 2030 Vision is one example of king-driven national agenda for a more sustainable country.

· People’s climate change awareness in the region is rising (a) as they experience its impact directly, (b) as they learn about the SDGs, Paris Agreement, NetZero, etc. through ever-more-present digital channels, and (c) as they witness a sustainability initiative in their country, e.g. solar farm, drip irrigation, “green” shopping mall.

· As “ordinary” people’s awareness grows, kings, emirs, sheiks, ministers, presidents, and others in charge are more in the spotlight on climate change matters and are expected to channel resources into long-term sustainable projects to safeguard their citizens. In companies, this extends to shareholders & investors, and ESG is used as the mechanism for change.

· The link between fossil fuels and climate change is obvious. This for oil and gas exporting countries such as Bahrain or Kuwait means diversifying their economies in order to thrive in a low-carbon world (despite the Ukrainian hiccup). If they don’t, (a) they won’t reduce emissions and meet their targets, (b) they’ll underperform against the ESG criteria which may alienate investors, (c) they will risk relying on oil – a resource that is by most indicators on a death row, as governments around the world legislate decarbonization, e.g. by banning petrol cars (UK) in the near term.

Also, abundant sunshine allows the Middle East to harvest the sun while praying to the crescent moon.

This ^^ plus much more is what corporations, often in line with government mandates, address through ESG frameworks to improve their environmental, social and governance performance, attract investment, and facilitate sustainable development.

Now, on our way towards Islamic finance, let’s remember that...

Out of eight billion people living today, 1.9 billion (24%) are Muslim and the population is rising … Muslims are demographically youngest (median age is 23) … for 76% of Muslims, religion is very important and 66% of Muslim consumers accept paying more for ethical products.

In the Muslim world, secularization (separation of state and its institutions from religion) that took place in the West didn’t happen, and the countries that were colonized by the Western empires “fell back” on their Sharia (religious) law. In other words, they got the taste of secular administration, but it didn’t “stick.” This proves the strength of religion in Muslim countries.

In the vast Muslim world, Islam is the sun around which the planets of society and its institutions – government, schools, banks, hospitals, businesses, entertainment, tourism, etc. rotate.

This represents a four-way intersection of -

· Climate change and SDGs at the global level;

· National mandates, targets, and ‘visions’ of several Muslim countries at the local/regional level;

· ESG as the mechanism through which sustainable transformation happens at the organizational level; and,

· Sharia (Islamic law) compliance on ALL levels in Muslim countries

Again, it’s the religious law that greenlights the integration of the other points. Even such a sector as finance is linked to religion.

How so? And how does it overlap with sustainability?

Islamic finance & the SDGs

Islamic finance is any Sharia-compliant financing activity.

It involves incorporating principles and objectives of Sharia (Maqasid al-Shariah) such as preservation of wealth, equality among people, law obedience, or prevention of corruption in finance. Various financial concepts, instruments and tools such as zakat, awqaf/waqf, sukuk, and Islamic microfinancing are used to incorporate these principles.

The OECD estimates the value of Islamic finance at USD 3 trillion, across 57 members of the Organisation for Islamic Cooperation (OIC).

In this report, the OECD outlines some pathways for channelling a share of Islamic finance into sustainable development, through the Sustainable Development Goals (SDGs) - to be reached by 2030.

There are synergies between the principles/instruments of Islamic finance and the SDGs, as per examples below:

· Zakat is compulsory charity donations by all financially-able Muslims to those in need (who must meet Sharia-law criteria). It overlaps with SDG #1 ‘No Poverty’, and #2 ‘Zero hunger.’

· Sukuk is an Islamic legal instrument / finance certificate of trust in Sharia investment. It’s a type of bonds, asset-based lending, an alternative to conventional debt financing. Green sukuk emerged out of the need to incorporate environmental aspects into Sharia finance. It specifically targets projects that bring environmental (in addition to financial) benefits – e.g. energy efficiency, renewable energy, frugal water management, better waste management, green buildings, better use of resources, or sustainable (public, EV) transport. As such, it aligns with SDG #7 ‘Affordable and Clean Energy’, #9 ‘Industry, Innovation and Infrastructure’, #12 ‘Responsible consumption and production’, #13 ‘Climate action,’ and #15 ‘Life on land’.

· Islamic finance prohibits interest* (while encouraging wealth generation and preservation). Interest-free loans put less pressure on the borrowers. This aligns with SDG #1 ‘No Poverty’, #7 ‘Affordable and Clean Energy’, #2 ‘Zero hunger’, #8 ‘Decent work and economic growth.’ *If there are service charges, their only purpose must be to cover the actual service, not generate profit for the lender.

· Investing in forbidden (haram) activities e.g. weapons trading, pork, alcohol, tobacco, pornography, prostitution, and gambling is prohibited. These activities are often linked to exploitation, violence and crime; their exclusion aligns with SDG #16 ‘Peace, justice and strong institutions,’ #8 ‘Decent work and economic growth’, and #12 ‘Responsible consumption and production.’

· Risk is shared between the investor and the borrower, unlike in a conventional system, where all risk is with the borrower (e.g. entrepreneur) while the investor is guaranteed a future-paced interest on the loan at a predetermined rate, irrespective of the project’s success. This is based on the principle of equal distribution and minimizing uncertainty. If the project, e.g. start-up succeeds, the profits are shared; if it fails, the investor lost money whereas the borrower lost energy, time, etc. but is not crippled by debt. This aligns with SDG #9 ‘Industry, Innovation and Infrastructure’, #10 'Reduced inequality.'

The OECD recognizes the untapped potential of these ^ synergies. But it also points out several challenges that need to be sorted, should these synergies result in an actual widespread connection between Islamic finance and sustainable development through the SDGs.


In the Muslim world, the Islamic principles, tools and instruments per se are strong and embedded. But their alignment with the SDGs – a relatively new concept – is still weak.

They are like a flirting couple on a first date – the chemistry and potential are there but they’re far from marriage.

One of the challenges is limited data on Islamic finance, e.g. zakat. Donations are often given anonymously or privately, without the donors wanting to “make a fuss”, letting others know. That’s in line with the principle of humility.

Whilst noble and understandable, this hinders vast untapped resources from being channelled to charitable, and SDG-aligned causes, because ESG reporting relies on quality data.

Troubling as it may seem, it’s nothing new that ESG needs accurate and quality data; the way things are technologically ascending, this seems like a solvable issue. Also, more governments could collect and distribute zakat, as they do in Malaysia.

This little article is just scribbling on a napkin…

The potential is immense when you factor in the severity of climate change; the SDGs’ target of 2030; the geographic and demographic landscape of the Muslim world, and the high status of religion.

The sun, the sky, and the crescent moon are the limit.


In a follow-up article, you're gonna get a VERY different angle on this - stay tuned!

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