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Climate finance: Islamic boundaries pushed by academia’s financial expertise.

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Islamic finance is at a critical juncture in responding to the global climate crisis, as the majority of large Islamic financial institutions continue to rely on the fossil economy while the world shifts towards environmental, social, and governance (ESG) issues. Islamic financial institutions need to diversify their portfolios and reduce exposure to fossil fuel-related assets. The UAE Consensus, an outcome of the Conference of Parties (COP28) meeting, calls on financial institutions to play a greater role in climate finance and support climate action. Energy transition financing presents an economic opportunity to cut carbon emissions and achieve zero-carbon targets set by participating countries. Islamic banks in Indonesia are also exposed to fossil-based economic activities, although to a lesser extent than oil-rich economies. The cost of inaction on climate change is high, with estimates predicting a significant rise in sea levels by 2100 that will submerge many coastal areas. To mitigate these risks, Islamic finance needs to embrace sustainable investment and support climate finance initiatives to achieve a sustainable future.

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