Islamic Development Bank and Clean Energy Financing: Pathways Toward Sustainable Transformation

Abstract

To mitigate global climate change, there is a need for a transition process that also reduces carbon emissions. Alternative financing methods can enable this transformation. The Islamic financing model, which is gaining increasing popularity today, provides an ethical and environmentally friendly alternative that is interest-free and facilitates risk sharing. The study aims to determine the thematic concentrations and geographical distributions of the Islamic Development Bank (IsDB) projects. Thus, the Bank's institutional role, comprehensiveness, and impact capacity in the renewable energy transformation can be evaluated. In this way, the role of the IsDB in clean energy financing will also be revealed. The objectives of the research are to analyze the geographical, sectoral, and temporal distribution of IsDB's clean energy financing projects spread over a wide area using a quantitative method. In addition, the strengths and weaknesses of these projects are revealed, and alternative policy recommendations are presented. The research found that the IsDB's focus areas were mostly renewable energy and water/waste management projects, but it did not provide sufficient opportunities for projects focused on nature-based solutions and inclusive financing. As a result of the social network analysis used in the research, it was concluded that the financing projects of the IsDB in 2024 and beyond will be quite diversified but less frequent. Various policy recommendations were also presented as a result of the study. These include providing fiqh-compliant project preparation and feasibility support in low-income countries, developing an impact assessment system that monitors sustainability outcomes, establishing a special financing program for underfunded themes, and developing an index that monitors inclusiveness at the country and theme level. These findings suggest that the synergy arising from the intersection of Islamic finance and green finance is critical for sustainable development and climate action.