Manifestation of Islamic Eco-Ethics in Green Financing Agreements within Islamic Banks

Abstract

The values embedded in Islamic teachings contribute significantly to sustainable development, particularly through Islamic Eco-Ethics, which provides a moral foundation for the human–environment relationship. As financial institutions governed by Islamic law, Islamic banks hold an ethical duty to support an environmentally conscious economy, one of which is realized through green financing that funds environmentally responsible business activities. This study aims to explain how Islamic Eco-Ethics is embodied in green financing contracts within Islamic banks using a conceptual approach based on Islamic Eco-Ethics principles and a regulatory approach referencing laws on sustainable financial governance. Islamic Eco-Ethics—rooted in the maqashid al-shari’ah and expanded to include hifz al-bi’ah (environmental preservation)—long predates Western sustainability frameworks, with Surah Hud: 61 affirming humans as divine stewards of the earth. The implementation of these values in Islamic banking reflects adherence to Islamic principles and compliance with national mandates on sustainable development. Islamic banks operationalize these ethics through ecological CSR initiatives, Sustainable Finance Action Plans, and Environmental Social Governance (ESG) frameworks aligned with POJK No.51/2017, all of which guide risk control in environmental, social, and governance domains. These principles materialize through green financing that supports environmentally conscious business activities. Integrating sustainability values into institutional culture and financing practices positions Islamic banks as agents of economic, social, and ecological transformation. Environmental impact assessments and AKHLAK-based values strengthen their leadership in Islamic green finance, demonstrating that Islamic Eco-Ethics is not only normative but also a practical approach with potential to serve as a global model for addressing environmental challenges through ethical, spiritual, and systemic frameworks.