Implementation of ESG (Environmental, Social, Governance) in Islamic Banks a Critical and Strategic Review

Yoga Sabda Alif; Selvi Resvika Fitri; Harliati Putri Pertiwi

Authors

Yoga Sabda Alif Universitas Islam Negeri Imam Bonjol Padang Author
Selvi Resvika Fitri Universitas Islam Negeri Mahmud Yunus Batusangkar Author
Harliati Putri Pertiwi Indonesian School Kota Kinabalu, Sabah Author

Keywords:

Environmental, Governance, Social

Abstract

This study aims to examine the implementation of Environmental, Social, and Governance (ESG) principles in the operations of Islamic banks in Indonesia. In the context of increasing demands for sustainable financial practices, this research is crucial to assess the extent to which ESG principles can be integrated with the core values of Shariah that underpin the Islamic banking system. The objectives of this study are to analyse the current application of ESG, identify existing challenges, and formulate implementation strategies aligned with maqashid shariah (the higher objectives of Islamic law). A qualitative phenomenological approach was employed to explore the perceptions, experiences, and perspectives of industry stakeholders. Data were collected through in-depth interviews, participant observations, and document analysis involving three major Islamic banks in Indonesia, regulatory authorities, and academics with expertise in Islamic economics and sustainability. The findings reveal that ESG implementation within Indonesian Islamic banks remains partial and lacks systemic integration. Environmental and social aspects have yet to become strategic components of institutional policy-making, while governance practices do not explicitly incorporate ESG indicators. Several factors contribute to this condition, including the absence of binding regulatory frameworks, limited awareness of ESG principles, and a lack of internal capacity to understand and operationalise ESG effectively. This study concludes that a reformulation of ESG strategies grounded in maqashid shariah is essential to ensure that sustainability principles and Islamic ethical values are harmoniously embedded within Islamic banking governance. Consequently, Islamic banks will not only enhance their competitiveness but also contribute meaningfully to holistic and sustainable development.

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