REPUBLIKA.CO.ID, JAKARTA -- Sustainable finance is a hot topic that continues to be discussed amid climate change. Through sustainable finance, sharia banks can align ESG and SDG aspects to create a more sustainable business, social, and societal environment.

President Commissioner of PT Bank Syariah Indonesia Tbk (BSI) Muliaman D Hadad said sustainable finance is closely related to climate change, but not limited to environmental aspects. Sustainable finance integrates environmental, social, and governance or ESG aspects into investment and financing decisions aligned with sustainable development goals (SDGs).

In the context of the sharia finance industry, the focus of sustainable finance with ESG is aligned with the goals of sharia (maqashid sharia) that underpins the business of sharia banks. In the environmental aspect, for example, the principle of responsible use of natural resources is in line with the principle of nature conservation. Based on this principle, sharia banks can play an active role in financing environmentally friendly projects, developing green-based products and services, and implementing environmentally friendly practices in their offices.

“Banks must issue products and conduct business in accordance with ESG. Banks need capital to run their businesses and to invest, but then where this capital comes from becomes very important now. Access to sustainable finance in business is very important. So sustainable finance should be run by banks and banks should know what sustainable finance is, not only financing, but also other instruments such as sukuk and green loan,” Muliaman said in a statement on Tuesday (7/5/2024).

This was stated by Muliaman during the 3rd Annual International Conference on Muslim World Economy and Business (ICMWEB) which held the theme “Sustainable Finance Amid Global Volatility: Forging the Pathway to Sustain the Future at Indonesian International Islamic University” at Lecture Hall, Joko Widodo Rectorate Building UIII Depok on Tuesday, May 2024.

Muliaman said sharia banks have the potential to contribute to sustainable finance. This is not separate from the main principle in sharia banking, which prohibits usury and investment in things that do not comply with Islamic law, are harmful to nature, and are unethical. This emphasis on investment can help drive sustainable finance by directing capital to socially responsible projects.

“Sharia banks encourage risk-sharing and profit-sharing, which can help increase financial inclusion by providing access to finance for underserved communities,” he said.

Then on the social aspect, Muliaman continued, the principle that is encouraged is to promote social justice and public welfare. This has been done by sharia banks through zakat, infak, alms, and waqf recipients and channeling it through philanthropic institutions. Sharia banks also encourage community empowerment programs and MSMEs.

Then in terms of governance, the principle of sustainable finance supports transparency, accountability, and ethics in business activities. The same principle is upheld by sharia banks in every activity. In fact, there is a supervision of business ethics according to the principles of sharia which is carried out by the Sharia Supervisory Board.

“The role of society is also very important as one of the stakeholders that can encourage businesses to be accountable and transparent. Therefore, collaboration and partnership are essential to make this ESG all real,” Muliaman said.

So in order to optimize the potential, Muliaman said there are at least three things that Sharia banks need to do. First, educate the principles of sustainable finance and ESG to all stakeholders including customers, investors, and the public in collaboration with governments, regulators, and non-profit organizations. Second, the formulation of the ESG framework that will be used as a guideline for the implementation, measurement, and supervision of ESG in Sharia banks, including ESG certification and rating. Third, increasing the share of financing in the ESG sector, while maintaining prudent risk management.

“In principle, sharia banks should be one of the drivers of climate change prevention through sustainable finance. However, if the sharia bank does not seek to adopt it, then the sharia bank will not only lose momentum, but also potentially lose market share and competitiveness in the future,” he said.

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