The report analyzes the role of Islamic finance in advancing sustainable and climate finance within the Organization of Islamic Cooperation (OIC) member countries, examining market trends, financial instruments, and innovations. Drawing on surveys of Islamic finance professionals, halal industry enterprises, and interviews with policymakers and private sector participants, the report identifies opportunities and challenges for developing the Islamic sustainable finance market, particularly in climate-focused initiatives.
Climate change poses significant economic risks, especially for the 57 OIC member countries, which are highly exposed and have limited adaptive capacity. Efforts to meet climate and development goals are underway, with 54 OIC members having ratified the Paris Agreement and 35 committed to net-zero targets. Achieving low-carbon strategies in these countries will require over US$1 trillion in investments by 2050, highlighting the need for mobilizing both public and private sector finance.
The OIC sustainable finance market has grown rapidly, from US$17.8 billion in 2017 to US$82.3 billion in 2024, a compound annual growth rate of 24.4%. Islamic financial instruments represented 16% of this total, with sustainable sukuk emerging as a key channel for climate finance, accounting for 35% of sustainable bond and sukuk issuances. While only one-third of sukuk are labeled “green,” nearly two-thirds of sustainable bonds carry a green label, indicating a need to channel sukuk more specifically toward climate mitigation and adaptation projects.
Islamic bank financing has considerable potential in climate finance, though only 8.2% of sustainable syndicated loans between 2017 and 2024 were Shariah-compliant. With Islamic banking assets estimated at US$2.8 trillion, significant opportunities exist to expand the sector’s climate finance role. Islamic finance standard-setting bodies, including the IFSB, CIBAFI, and AAOIFI, are developing prudential guidance, governance standards, and capacity-building initiatives to align Islamic finance with global best practices and enable climate finance growth.
Despite progress, challenges remain in developing a robust climate finance ecosystem across the OIC. To unlock the potential of Islamic climate finance, the report identifies three strategic priorities: mainstreaming Islamic climate finance instruments by preparing bankable projects, designing targeted incentives, and leveraging multilateral development bank collaboration; accelerating capacity building and technical exchanges among OIC members through practical knowledge tools and enhanced data systems; and fostering Islamic climate financial innovation, including blended finance solutions and the use of Islamic social finance tools such as zakat, waqf, and micro-takaful to support community resilience and measurable climate outcomes.
The report concludes that the Islamic finance sector is uniquely positioned to contribute to global climate goals through values-based, inclusive financial solutions, provided policymakers, regulators, and development partners implement targeted reforms and strategic initiatives to expand the market for climate-focused Islamic finance.
