Islamic ESG: A New Blueprint For Sustainable Capital

Forbes

22-06-2025

Faraz Khan, CEO & Partner at Spectreco and Yousef Khalawi, Secretary-General of AlBaraka Forum for ... More Islamic Economy at 2nd Global Islamic Economy Summit in Istanbul.
Islamic ESG: A New Blueprint For Sustainable Capital
Imagine going to your bank to borrow money and having an opportunity to help stipulate the lending agreement because you are the one who has to give back the money. While this seems like an unimaginable scenario for most people in the Western world, it's an example of how an Islamic moral framework called Maqasid al-Shariah is applied to the world of finance and has the potential to influence the future of sustainable capital.
Globally, Islamic-finance assets were estimated to be more than US $ 5 trillion in 2024 and are projected to grow to US $7.5 T by 2028, according to Standard Chartered's 2025 industry outlook. While Islamic finance is still a niche slice of the overall system—roughly one dollar in every eighty of global financial assets—the segment's compound annual growth of approximately 10% - 12% is outpacing the broader financial system. One of the drivers of growth Islamic-finance assets is the increasing incorporation of Shariah principles into sustainable-finance and ESG products—an area where faith-aligned screening overlaps with mainstream ethical investing.
Shariah-compliant funds are now offered by financial institutions including SP Funds which has North America's largest family of Shariah-compliant funds, Manulife which added Shariah-aligned funds to its i-Watch platform, and Mackenzie Investments which offers the Mackenzie Shariah Global Equity Fund. These Shariah-compliant ESG indexes go beyond conventional environmental, social, and governance criteria by embedding the fundamental objectives of Islamic law—preserving human dignity, ensuring social justice, and safeguarding the environment—into their core methodologies.
The newest entry into this growing space is the AlBaraka Islamic ESG Index - Powered by Spectreco which was launched earlier this month at the 2nd Global Islamic Economy Summit in Istanbul. The AlBaraka Islamic ESG Index is distinct because it operationalizes both Shariah and ESG through real-time data, AI automation, and principles-based governance, according to Faraz Khan, CEO & Partner at Spectreco. 'This index ends the false choice between Shariah compliance, ESG values, and financial performance,' said Khan.
The new index combines technology and advanced AI infrastructure with Shariah scholarship. According to Yousef Khalawi, Secretary-General of AlBaraka Forum for Islamic Economy, the AlBaraka Islamic ESG Index is the first of its kind to integrate Maqasid al-Shariah principles with global ESG frameworks and be powered by advanced AI infrastructure that delivers real-time financial performance data and dynamic, automated scoring. 'Its dual governance model, combining cutting-edge technology with rigorous Shariah oversight, ensures unparalleled transparency and accountability. This synergy produces a next-generation benchmark that harmonizes ethical integrity with market efficiency—something no traditional ESG index currently offers.'
At a time when conventional ESG models are being criticized for greenwashing or lack of relevance across cultural contexts, Islamic finance, with its intrinsic emphasis on equity, justice, and stewardship may be a compelling alternative. 'Maqasid al-Shariah can offer the world not only a moral compass but a practical roadmap for sustainable financial systems,' said Khan.
According to Yousef Khalawi, the impetus behind launching the AlBaraka Islamic ESG Index was a clear market need for an innovative financial instrument that bridges the gap between spiritual values and sophisticated economic demands. 'The inspiration was simple: the industry was asking for it,' said Khan. 'Whether you're an asset manager in the Gulf Cooperation Council or a regulator in Southeast Asia, the demand for values-aligned, ESG-credible, and tech-integrated tools is growing.'
Albaraka and Spectreco hope the index will unlock significant opportunities for a broad spectrum of financial market professionals and participants. These include asset managers seeking Shariah-compliant, ESG-integrated portfolios, sovereign wealth funds with sustainable development objectives, banks that can use the index as a foundation for innovative Shariah-based financial products, and Islamic stock exchanges that can co-develop regional benchmarks.
Khan and Yousef Khalawi have a bold vision: to transform Islamic finance into a globally recognized standard that marries financial performance with ethical responsibility. 'Ultimately, success means establishing a trusted, transparent, and scalable financial infrastructure that empowers the Islamic economy to lead global efforts in creating a just and sustainable financial future,' said Yousef Khalawi. They also hope the index will become part of the everyday infrastructure of capital markets. 'If we can redirect capital towards ventures, cities, and institutions that advance justice, equity, and environmental restoration — we'll know the index hasn't just measured values, but moved them,' said Khan.
The launch of the AlBaraka Islamic ESG Index is part of a broader shift in global finance that is demanding more than incremental change. Regulators and investors are questioning the legitimacy of ESG. Civil society stakeholders are calling for financial systems to reflect a more diverse ethical worldview. In this context, the AlBaraka Islamic ESG Index has the potential to be a reinvention of what responsible finance can be when guided by values and built with modern tools.
'What makes this moment unique is the convergence of technological readiness and global capital appetite,' said Khan. 'We're seeing an evolution from compliance to conviction—where Maqasid al-Shariah can offer the world not only a moral compass, but a practical roadmap for sustainable financial systems.'
The collaboration between AlBaraka Forum is a fusion of capital, tradition and technology. The Forum brings decades of expertise in Islamic economics and policy influence, while Spectreco supplies the data, digital tools, and AI-driven governance models needed to operationalize Shariah values at scale. Together, they're filling a gap in the market and helping to create a new blueprint for the future of sustainable capital.