The Impact of Islamic Finance on Sustainability Reporting

The Impact of Islamic Finance on Sustainability Reporting

Adel M. Sarea (Ahlia University, Bahrain)
DOI: 10.4018/978-1-7998-0062-0.ch017

Abstract

This chapter explores the impact of Islamic finance on sustainability reporting, and the mediator role of green accounting. Sustainability focuses on balancing present and future consumption to ensure basic needs of coming generations will be met. The mediator role of green accounting could positively impact sustainability financial reporting and sustainability reporting. The chapter employs content analysis approaches to explore the environmental impact of Islamic finance on sustainability reporting. Sustainability enhances future environmental aspects of reducing costs and risk management. The proposed model is based on the literature review to conceptualize the mediator role of green accounting. The chapter adds value to the literature on green accounting and sustainability reporting by considering the role of Islamic finance to promote a friendly environment.
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Introduction

Sustainability has been widely debated in the literature on social, economic and environmental studies reflecting the role of Islamic finance in the economic development worldwide. In this regard, firms are published sustainability reports to provide information on non-financial aspects of their performance as well as to financial aspects (Kılıç & Kuzey, 2018). Sustainability term in green finance, banking, accounting and business has a broad definition. It can be defined as financing environmentally friendly activities, green technology, and projects that reduces pollution (Sekreter, 2017).

In response to reduces pollution, national governments, international institutions, non-governmental organizations have begun to pay greater attention to the environment to ensure sustainability and promote green business investment. Muslim countries, in particular, will suffer from environmental degradation due to the lack of financial support, weak institutions, inappropriate technology, poverty and inadequate knowledge concerning the environment. However, Muslim countries will endorse green investments which comply with the Islamic law (Shariah). In Islam, ethical investment refers to productive economic activities which prohibit the production of luxury products at the expense of public necessities. Priority in the Islamic economy is given to the production of goods and services that alleviate poverty and promote equity in the distribution of resources among members of the community. Thus, the Islamic financial system must comply with principles of the Shariah by funding friendly environmentally projects which will protect the environment through promoting green accounting and sustainable reporting.

This paper sheds some light on the role that the Islamic financial system can play in financing green investments and supporting the environment. Islam endorses ethical market activities and the principles of justice and equity in Islam.

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