Managing Climate Change: The Role of Islamic Finance

Environmental protection and sustainability fits in nicely with the Islamic finance agenda that seeks to enhance the general welfare of society. Protection of the planet and the environment, climate management and adaptation, as organizational goals are clearly in conformity with the goals of the Shariah as well as with the SDGs. This paper takes the argument further and seeks to demonstrate how Islamic finance can significantly contribute to the global search for climate finance solutions. Islamic social funds can potentially play a significant role in absorbing the incremental costs with clean technologies where subsidies are not forthcoming to absorb the same. For zakat funds to be used for the purpose, an additional condition need to be met, i.e. the beneficiaries must be poor. The institution of waqf, along with zakat and Sadaqa, can certainly play a role in coping with humanitarian crises resulting from climate change. Awqaf like foundations may directly engage in provision of goods and services related to mitigation and adaptation. Awqaf may also be dedicated to research and development and towards increasing consumer awareness and stronger support of action to mitigate climate change. Similar to SRI Funds, the Islamic Green Funds and similar to Green Bonds, the Islamic Green Sukuk can contribute significantly to the agenda of climate change.