Fighting climate change and building thriving communities? It sounds impossible, right? But in Jakarta, Indonesia, a region facing the climate crisis head-on, a powerful new idea is taking center stage. Greenpeace Indonesia, the Indonesia Banking School, and the Ummah for Earth Alliance recently launched a campaign exploring how Islamic finance can be a key to unlocking a sustainable future. Their “Beyond Halal” conference brought together financial leaders and experts to tackle a crucial question: can Sharia-compliant finance unlock the trillions needed to fight climate change and create sustainable livelihoods? The answer could change everything. Keep reading to find out how.
Related: Islamic Finance’s Impact on Climate Change Mitigation in Indonesia-Supporting SDG 13
The Urgency of a Triple Crisis
The urgency of the situation cannot be overstated. Our planet faces a triple planetary crisis: climate change, pollution, and biodiversity loss. These interconnected challenges threaten Earth’s delicate ecosystems and the foundations of our societies, jeopardizing food security, driving displacement, and exacerbating existing inequalities. Developing solutions that address these multifaceted problems while simultaneously promoting economic development and social justice is paramount. This is where the concept of sustainable livelihoods takes center stage.
Sustainable livelihoods go beyond simply earning a living. They encompass the capabilities, assets (both natural and financial), and activities needed for a dignified existence. A sustainable livelihood is resilient – it can withstand and recover from stresses and shocks and maintain or enhance its capabilities and assets, all while safeguarding the natural resource base. In the context of a rapidly changing climate, this translates to building community resilience, generating green jobs, and ensuring that communities possess the resources and opportunities necessary to flourish in an increasingly uncertain world. It’s about empowering individuals and communities to adapt and thrive in the face of environmental challenges, ensuring their well-being and prosperity for generations to come. This includes access to education, healthcare, and infrastructure, as well as the ability to participate in decision-making processes that affect their lives.
The “Islamic Finance For Earth” Campaign
The “Islamic Finance For Earth” campaign, spearheaded by the Ummah for Earth Alliance, seeks to bridge the critical gap between effective climate solutions and the immense, largely untapped potential of Islamic finance. “Through this campaign, we will foster dialogue between stakeholders and connect the narrative of climate solutions and actions with our audience so that Islamic finance can be recognized and utilized as a viable climate financing solution,” explained Rahma Shofiana, Ummah for Earth Project Lead at Greenpeace Indonesia. This initiative isn’t just about raising awareness; it’s about catalyzing action, fostering collaboration, and driving tangible change on the ground.
It involves working with local communities to identify their needs and develop projects that not only address climate change but also create economic opportunities and improve their quality of life. This campaign builds upon the significant momentum generated by the “Islamic Finance and Renewable Energy” report, a collaborative effort launched last year by Greenpeace MENA (also part of the Ummah For Earth Alliance) and the Global Ethical Finance Initiative (GEFI). This insightful report illuminated the transformative power of Islamic finance in accelerating the global transition to renewable energy.
The report’s findings are compelling: by allocating a mere 5% of the Islamic finance sector’s estimated $4.5 trillion in assets to renewable energy projects, a substantial $400 billion could be mobilized for climate finance by 2030. Considering projections that Islamic finance assets could reach $6.7 trillion by 2027, the potential impact becomes even more significant, representing a powerful opportunity to reshape the global energy landscape and accelerate the shift towards a low-carbon economy.
The Synergy of Principles
The synergy between Islamic finance principles and the pursuit of sustainable livelihoods is undeniable. Sharia principles, which underpin Islamic finance, emphasize environmental stewardship (mizan), ethical investment (halal), and social responsibility (maslaha) – values that are intrinsically linked to the concept of sustainability. As Dr. Hayu Prabowo, Chairman of the Institute for Environmental and Natural Resources Improvement, Indonesian Ulema Council, articulated, “Based on the report, the Islamic finance industry has a unique opportunity to support climate action financing through the concept of sustainable Islamic finance, which is not only based on the principle of halal but also on the aspect of tayyib.” Halal, meaning permissible, and tayyib, meaning good, pure, and wholesome, are foundational principles that guide every aspect of Islamic finance.
They ensure that financial activities are not only ethically sound and Sharia-compliant but also contribute to the broader well-being of society and the preservation of the environment. This holistic approach ensures that economic development is not pursued at the expense of environmental degradation or social injustice. The scale of the climate challenge is immense. The annual renewable energy funding gap is estimated to be a staggering $5.7 trillion. This colossal figure underscores the pressing need for innovative financing mechanisms and highlights the critical role that Islamic finance can play in bridging this gap.
Sharia-compliant financial instruments, such as sukuk (Islamic bonds), offer a compelling alternative to conventional financing models. These instruments can be structured to support a diverse range of sustainable projects, spanning from large-scale renewable energy development and the construction of green buildings to the implementation of sustainable agriculture practices, the promotion of eco-tourism initiatives, and investments in climate-resilient infrastructure. Sukuk can also be used to finance projects that address other critical aspects of sustainable livelihoods, such as education, healthcare, and access to clean water.
Indonesia’s Leading Role
Indonesia, the world’s most populous Muslim-majority nation, is at the forefront of exploring the potential of green sukuk. Its pioneering green sukuk program has demonstrably contributed to preventing over 974,000 tonnes of CO2 emissions annually. This remarkable success story exemplifies the tangible impact of aligning Islamic finance with concrete climate action. The expanding market for ESG (Environmental, Social, and Governance) Sukuk, which reached $9.9 billion in just the first half of 2024, further solidifies this positive trend, demonstrating growing investor confidence in sustainable finance.
This growing market is not just driven by ethical considerations; investors are also recognizing the financial benefits of investing in sustainable projects, which are often less risky and offer long-term returns. Tariq Al-Olaimy, Islamic Finance Advisor to the Ummah For Earth Alliance, emphasized the transformative potential of Islamic finance. “Islamic finance isn’t simply an alternative financial system—it’s a powerful force for climate action,” he asserted.
“With assets projected to reach $6.7 trillion by 2027, directing a mere 5% toward renewable energy could mobilize $400 billion for climate solutions by 2030. The imperative for action is clear—Islamic financial institutions must accelerate their investments in renewable energy and other sustainable initiatives to effectively address the escalating climate crisis.” This includes not only increasing the volume of investments but also developing innovative financial products and services that cater to the specific needs of sustainable projects.
Collaboration and Innovation for a Sustainable Future
The discussions in Jakarta underscored the critical need for collaboration and innovation. By bringing together policymakers, financial institutions, environmental organizations, and community leaders, the “Islamic Finance For Earth” campaign is cultivating a crucial dialogue that can pave the way for a more sustainable future. The potential of Islamic finance to unlock sustainable livelihoods, mitigate the impacts of the climate crisis, and promote social justice is immense. The challenge now lies in translating this potential into concrete action.
This requires not only a significant increase in investment in renewable energy and other sustainable projects but also the development of robust regulatory frameworks that support sustainable finance, capacity-building initiatives that empower communities and financial institutions, and greater public awareness of the numerous benefits of Islamic finance. It also requires addressing the challenges of greenwashing and ensuring that projects that are labeled as sustainable are genuinely contributing to environmental and social goals.
A Vision for Harmony
The journey toward a sustainable future demands a concerted, global effort, and Islamic finance has a vital role to play in building a world where both people and the planet can thrive in harmony. The conference in Jakarta represented a crucial step forward on that journey, demonstrating the power of collaboration and the potential of faith-based finance to address some of the most pressing challenges of our time. The road ahead may be long and complex, but with unwavering commitment, continuous innovation, and a shared vision, the goal of sustainable livelihoods powered by Islamic finance can become a tangible reality.
A sustainable future, where prosperity and environmental stewardship coexist, is possible. Islamic finance offers an ethical pathway to achieve this, mobilizing funds for renewable energy and empowering climate-vulnerable communities. By prioritizing ethical investments and social responsibility, it can build resilience, create green jobs, and drive sustainable innovation. This includes greater financial inclusion, especially for marginalized groups, and supporting sustainable SMEs. Islamic finance offers a powerful tool for a just and equitable world. Explore the resources below to learn more.
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