Risks in Islamic Green Finance and Takaful as a Solution

Abstract

Islamic green finance faces unique risks that require careful consideration and mitigation strategies in promoting the success of sustainable projects.  This paper highlights Takaful, with its unique risk-sharing mechanisms, Shariah compliance, and community-based approach, can offer valuable and innovative solutions to address these risks and enhance the viability of Islamic green finance in promoting sustainable development and environmental responsibility. This research employs a qualitative approach through secondary data analysis. This paper, meticulously crafted based on an extensive analysis of documents and reports from financial regulatory and supervisory bodies, multilateral organizations, and industry experts, examines the integration of climate risk considerations into Takaful sector business models, encompassing both the challenges and opportunities arising from climate-related risks. By addressing the key challenges and seizing the opportunities, insurance and takaful operators’ (ITOs) can play a leading role in building a more resilient and sustainable future. Indeed, by leveraging ITOs’ strengths, Islamic green finance institutions can enhance the viability and impact of their investments, effectively manage risks, promote sustainable practices, and contribute to a more sustainable future.