Integrating Environmental, Social and Governance (ESG) Factors in Islamic Finance: Towards the Realisation of Maqāṣid al-Sharīʿah

Abstract

Environmental, social and governance (ESG) concerns underlie the value proposition of the Sustainable and Responsible Investment (SRI) industry. Overall, the SRI industry seeks to address global challenges relating to the environment, society and corporate governance by explicitly integrating ESG issues in the selection and management of investment portfolios. It thus conveys the ideas of a socially responsible goal, a sustainable economic development agenda, a concern for human welfare, social justice, peace, and a healthy environment, as well as promotion of a fairer financial world (Domini, 2001; Brill et al., 1999). Guided by Islamic ethical values, Islamic finance, by definition, is also expected to endogenise ESG issues in its provision of Islamic financial services. ESG concerns under the Islamic finance paradigm are, however, derived from Islamic principles which are rooted in the Sharīʿah (Islamic law) as compared to the SRI industry whose values are largely socially determined, sourced from such principles as humanism, socialism, secularism, or environmentalism (Wilson, 2005).