The integration of sustainability, finance, digital technologies and industrialization has become crucial for achieving the Sustainable Development Goals (SDGs). However, the literature has overlooked the role of sustainable industrialization and Islamic finance (aligned with various SDGs), particularly in advancing climate action (SDG 13). The purposes of this study is to use Sukuk holdings as a proxy for Islamic finance, sustainable industrialization (SDG 9) and digital technology to examine their effects on consumption-based carbon emissions (CCO2e).
The study uses annual data for 12 emerging OIC countries with a dual banking system and uses the Driscoll–Kraay standard error method to obtain long-run estimates, addressing potential issues of cross-sectional interdependence, heteroscedasticity and serial correlation.
Empirical findings indicate that Islamic finance and sustainable industrialization help reduce CO2e, suggesting their imperative role in improving environmental quality. Further, an inverted U-shaped link between per capita income and CCO2e confirmed the Environmental Kuznets Curve (EKC). A similar inverted U-shaped pattern appears between digitalization and CCO2e that supports the Kuznets Curve premise. These results imply that, initially, digitalization increases energy use because of infrastructure and the use of digital devices information and communication technologies (ICTs). Once a threshold is reached, digitalization development enhances energy efficiency, enabling digital substitution and better resource management, which may reduce emissions. Instead, the effect of energy use on CCO2e is significant and positive, suggesting an increase in pollution.
This research covers a limited number of OIC countries and focuses on Islamic finance. Also, data on green Sukuk, which offer an effective sharia-compliant solution by mobilizing funds for environmentally sustainable projects, is not available for most of the OIC. Future research venues can address the defined gap once the data are readily available.
The outcomes of this study offer important implications for policymakers, bank regulators and practitioners. Based on the findings, there is a call to expand Islamic finance, which supports sustainable projects and renewable energy. The OIC governments should adopt appropriate measures to allocate these funds to sustainable activities, with a view to boosting economic growth and people’s well-being by implementing sustainable/green projects in those climate-risk and vulnerable Islamic countries.
This study introduces Sukuk holdings as a proxy for Islamic finance, along with sustainable industrialization, to investigate their impact on CCO2e. This environmental indicator remains largely unexplored in the finance literature.
