Rethinking ESG for Islamic Finance: A PESTEL-Based Strategic Framework (SREEF)
DOI:
https://doi.org/10.53276/eligible.v5i1.138Keywords:
Islamic Finance, ESG, Shariah Compliance, Institutional Theory, Regulatory AlignmentAbstract
Islamic Financial Institutions (IFIs) increasingly operate within sustainability-oriented regulatory environments in which Environmental, Social, and Governance (ESG) requirements interact with established Shariah governance structures. Although the literature frequently highlights the ethical convergence between ESG and Islamic finance, less attention has been given to the operational challenges that may arise when ESG regulation and Shariah governance employ different concepts, indicators, reporting practices, and institutional authorities. This study applies a qualitative PESTEL analysis to examine the political, economic, social, technological, environmental, and legal conditions shaping ESG engagement within Islamic finance. Drawing on peer-reviewed literature, regulatory reports, and Islamic finance policy documents, the analysis identifies recurring issues involving regulatory coordination, differences in sustainability measurement, the recognition of Islamic social-finance instruments, and the integration of ESG and Shariah governance mechanisms. Building on Institutional Theory and Legal Pluralism, the study proposes the Shariah-Responsive ESG Engagement Framework (SREEF) as a conceptual-policy framework for examining compatibility and facilitating governance adaptation in dual-governance settings. SREEF is not presented as an empirically validated model, but as an analytical starting point for regulators, central banks, Shariah boards, and IFIs seeking to explore more coherent forms of ESG-Shariah regulatory alignment. The study contributes to discussions on sustainable finance, regulatory harmonisation, environmental governance, and institutional legitimacy in Islamic financial systems.
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