Green Finance in the Islamic Context: Assessing Its Implementation in Indonesian Banking
DOI:
https://doi.org/10.46870/milkiyah.v5i2.1536Keywords:
Green Finance, Islamic Banking, Sustainability , Sustainable Economic GrowthAbstract
Green finance has emerged as an important mechanism for promoting sustainable development by directing financial resources toward environmentally responsible activities. In the Islamic context, green finance is closely aligned with the principles of Maqasid Sharia, which emphasize social welfare and environmental stewardship. Despite growing interest in sustainable finance, empirical evidence regarding the implementation of green finance in Islamic banking remains limited, particularly in developing countries. This study aims to assess the implementation of green finance in Indonesian banking by examining the extent to which it has been adopted in Islamic banking, comparing its adoption with conventional banking, and evaluating its impact on sustainable economic growth. Using a quantitative approach, panel data were collected from annual reports, sustainability reports, and Financial Services Authority publications covering the period 2013-2022. The sample consists of conventional and Islamic commercial banks selected through purposive sampling. Descriptive statistics and panel data regression were employed for data analysis. The findings indicate that Islamic banks exhibit a higher level of green finance implementation than conventional banks, reflecting the strong compatibility between Islamic finance principles and sustainability objectives. However, green finance does not significantly affect sustainable economic growth in either banking system. These results suggest that green finance in Indonesia remains at an early stage of development, with its scale and maturity still insufficient to generate meaningful macroeconomic impacts. This study contributes to the growing literature on sustainable and Islamic finance by providing comparative evidence from Indonesia's dual banking system and highlighting the need for stronger regulations, expanded Sharia-compliant green financial instruments, and greater institutional capacity to support sustainable development.
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