Relational ramifications between political factors and sukuk in promoting sustainable forest management

Abstract

Sukuk has gained popularity as a versatile financial instrument, financing a wide range of projects, including those with a focus on sustainability, even before the introduction of green sukuk. This challenges the assumption that Islamic banking and finance are inherently more environmentally friendly than conventional counterparts, highlighting their commitment to environmental preservation in line with Sharia compliance principles. With climate change exacerbating and forests being one of the most effective natural resources for mitigating emissions, this study aims to explore the effectiveness of Sukuk in influencing sustainable forest management. Focusing on a forest area prone to conflicts, particularly related to issues like illegal logging and unauthorized permits, the study examines the role of Sukuk and political factors in implementing sustainable forest management. The study samples D-8 countries (Bangladesh, Egypt, Indonesia, Iran, Malaysia, Nigeria, Pakistan, and Turkey), representing a significant portion of the Muslim population, with data collected from 2010 to 2021. Utilizing unbalanced panel regression and various alternative approaches, the study tests hypotheses and validates its credibility. The findings show that sukuk influences Sustainable forest management, proving that even without the label “green”, it still may contribute to environmental conservation. Conversely, political factors are found to have a detrimental impact on forest management. The study has significant implications for literature and the government or regulatory body responsible for Islamic banking and financial institutions to implement or reinforce policies that promote a preference among Islamic banks for initiatives focused on environmentally sustainable projects.