Dr. Syed Waleed Mehmood Wasti

The global shift towards ethical and responsible business shares many common goals with Islamic finance. These shared objectives include treating people with fairness, adopting a more responsible attitude towards the environment and also ensuring that organizations are being run transparently. Such ideas are captured in the ESG (Environmental, Social, and Governance) framework. Not surprisingly, such ideals are also encapsulated in the objectives of Islamic law (commonly known as Maqasid al-Shariah). This paper seeks to address how thoroughly the Islamic banks in Pakistan are converting the ESG ideas into practice. The authors used a step-wise review method (PRISMA) and shortlisted 30 relevant papers after searching major research databases. Although, the review concludes that there is a lot in common between Islamic Finance and ESG in theory; in practice, the focus of Islamic Banks is primarily geared towards avoiding illegal (haram) activities instead of a more holistic approach that actively seeks towards achieving a positive impact on the environment, social dynamics or governance. Several limitations prevent them from achieving these objectives: a lack of standards for “green” Islamic investment, poor regulation, a dearth of trained staff, and the risk of “greenwashing”. The study concludes that Green Sukuk, value-based banking and digital banking could alleviate the problem and help close the gap between theory and practice. At the end we provide actionable advice for regulators, banks and investors.