The Impact of Green Banking Initiatives: Assessing Environmentally Friendly Banking on Islamic Banks in Indonesia

Abstract

As environmental concerns continue to shape global financial landscapes, green banking initiatives have emerged as a transformative force, particularly within Islamic banking. This paper explores the integration of environmentally friendly banking practices within Islamic banks in Indonesia, examining their alignment with shariah principles and their role in promoting sustainable development. Islamic banks, guided by ethical and socially responsible finance principles, provide a unique platform for advancing green initiatives, addressing critical challenges such as climate change, energy sustainability, and resource efficiency. The research evaluates the effectiveness of green banking measures, such as green financing, eco-friendly investment products, and sustainability-linked bonds, in fostering environmental and economic resilience. By employing a qualitative methodology, this study synthesises empirical data, literature analyses, and case studies from Indonesian Islamic banks to assess the impact of these initiatives on financial performance, customer trust, and environmental outcomes. Key questions addressed include: How do green banking initiatives align with Islamic ethical values? What barriers and opportunities exist in implementing such practices within Islamic financial institutions? Findings reveal that while green banking enhances the competitive advantage and social accountability of Islamic banks, challenges such as regulatory gaps, limited awareness, and high implementation costs hinder widespread adoption. Recommendations emphasise the need for stronger regulatory support, increased public-private collaboration, and enhanced stakeholder engagement to maximise the potential of green banking in Islamic finance. This paper contributes to the growing discourse on sustainable finance, offering actionable insights for policymakers, Islamic financial institutions, and stakeholders committed to building a greener, more inclusive economy.