The Role of Islamic Financial Institutions in Supporting SDG 13 : Climate Change Mitigation in Indonesia

Climate change is no longer an issue of the future it is a reality that we are already feeling. Indonesia, as the largest archipelago, faces great risks due to rising sea levels, increasing temperatures, and higher frequency of natural disasters. In this context, the role of financial institutions is vital. Islamic financial institutions, with their principles of fairness, sustainability and social responsibility, have great potential to be a strategic solution in supporting Sustainable Development Goals (SDG) 13: climate change mitigation.

A.Integrating Sharia Principles with Green Finance
The basic principles of Islamic finance, such as the prohibition of riba (interest), gharar (uncertainty), and encouraging social investment, are aligned with the concept of sustainable development. Through instruments such as Green Sukuk, Islamic financial institutions have contributed to the financing of environmentally friendly projects. Since 2018, Green Sukuk Indonesia has financed various renewable energy, energy efficiency, and waste management projects. However, the adoption of this product is still concentrated in the government sector, with relatively limited participation from the private sector and the general public. At this time, Islamic banks in Indonesia need to take proactive steps in creating innovative financing products to support climate change mitigation. For example, mudharabah schemes can be used to finance waste management projects in villages or solar power plants in remote areas.

B. Optimising Zakat and Waqf for the Environment
In addition to commercial instruments, the potential of social instruments such as zakat and waqf must be optimised. Data from the National Amil Zakat Agency (BAZNAS) shows that the allocation of zakat for environmental programmes is still very minimal. In fact, zakat funds can be directed to forest rehabilitation, water conservation, or helping communities affected by climate disasters. Productive waqf can also be used to build waste management infrastructure or renewable energy that provides long-term benefits.

C. Challenges that Must Be Addressed
Despite its huge potential, Islamic financial institutions face significant challenges. Low public literacy about Islamic green financial products is a major obstacle. Many do not understand how they can contribute to climate change mitigation through Islamic financial products. In addition, regulatory support and incentives from the government to encourage the development of Islamic green finance are still not optimal.

D. Encouraging Active Role of All Parties
To maximise the role of Islamic financial institutions in climate change mitigation, close collaboration between the government, regulators, industry players and the community is needed. The government needs to provide tax incentives or subsidies for green projects funded by Islamic banks. Regulators such as OJK and Bank Indonesia should also encourage the development of a more inclusive Islamic green finance ecosystem. The public also has an important role to play by choosing financial products that are not only economically beneficial but also have a positive impact on the environment. Literacy on the importance of Islamic green finance needs to be continuously improved through education and socialisation campaigns.

E.Realising a Sustainable Future
Climate change mitigation is not just the responsibility of governments or large organisations. It is a shared responsibility. Islamic financial institutions, with principles that are in line with sustainability values, can be a driving force in creating a green economy in Indonesia. By integrating sharia green financing into everyday financial policies and practices, Indonesia will not only be better prepared to face the challenges of climate change, but also strengthen its position as a leader in sharia-based green financing in the global arena.

Reference : 

1. United Nations. (2023). Sustainable Development Goals. Retrieved from https://www.un.org/sustainabledevelopment/
2. Bank Indonesia. (2024). Peran Keuangan Syariah dalam Pembangunan Berkelanjutan. Jakarta: Bank Indonesia.
3. Ministry of Finance. (2024). Green Sukuk Annual Report 2024. Jakarta: Ministry of Finance.
4. Obaidullah, M. (2020). Islamic Finance for Sustainable Development. IRTI.
5. BAZNAS. (2024). Laporan Tahunan BAZNAS 2024. Jakarta: Badan Amil Zakat Nasional.