The Integrating Fiqh, Maqasid Sharīa, and ESG: A Proposed Framework for Risk Management in Islamic Banking

Abstract

Islamic banks are undergoing rapid digital transformation, yet this shift brings new vulnerabilities and increases exposure to climate‑related risks. These challenges indicate that digitalization is not merely a technological upgrade but a strategic evolution requiring Islamic banks to embed sustainability and resilience at the core of their governance systems. This study aims to explain the integration of fiqh principles and Maqāṣid Sharīʿa in Islamic bank risk management, and explore relevance of ESG to risk management. It also seeks to develop an ESG framework aligned with Fiqh and Maqāṣid Sharīʿah. Using a qualitative descriptive case study approach, this research examines Bank Syariah Indonesia (BSI) as the primary unit of analysis. Data were collected through triangulation (semi‑structured interviews with Shariah authorities and practitioners), document analysis of BSI’s 2023–2024 Sustainability Reports, relevant regulations, and direct observation of ESG implementation. The findings reveal that Fiqh provides the legal foundation for risk governance, while Maqāṣid Sharīʿah functions as an ethical and teleological compass guiding decision‑making toward public welfare. ESG, in turn, offers operational tools that translate Shariah values into measurable sustainability practices. Evidence from BSI’s initiatives in sustainable financing and digital financial inclusion demonstrates that ESG can operate as a vital instrument for risk mitigation while simultaneously generating positive socio‑environmental impact. Key implications include the need for regulators to develop ESG reporting standards that are integrated with Islamic law, the importance of capacity building for Shariah Supervisory Boards and risk management teams, and the necessity of industry‑wide commitment to sustainability as a driver of long‑term competitiveness and institutional resilience.