The Role of Islamic Insurance in Supporting Sustainable Finance Taxonomy in Indonesia
Sharia Insurance as part of the Islamic finance industry has an important role in supporting sustainable and equitable economic development. With the principles of mutual help (ta’awun) and risk sharing (tabarru’), Islamic insurance offers sharia- based financial protection solutions that not only meet the needs of individuals and families, but also support broader social goals. In the context of sustainable finance, Islamic insurance can play a key role through the development of products that support green investments and environmentally friendly financial practices.
The newly introduced taxonomy of sustainable finance in Indonesia by the Financial Services Authority provides an overview of how financial institutions can support sustainable development through investments and products that are aligned with environmental, social, and governance (ESG) principles. However, the challenges faced by the Islamic insurance industry in supporting this taxonomy are the lack of public awareness about environmentally friendly Islamic insurance products and limited product innovation in this sector.
Problem formulation in the development of Islamic insurance products to support sustainable finance focuses on several important issues, including: how to create products that comply with sharia principles and still support sustainable development goals, how to increase public participation in sharia insurance, and how insurance institutions can play an active role in the implementation of the sustainable finance taxonomy.
- Conceptual Framework of Sharia Insurance in Sustainable Finance
Islamic insurance has a strong theoretical basis in sharia principles, especially in terms of usury, gharar, and maysir which are prohibited in Islam. The Islamic insurance model based on the principles of ta’awun and tabarru’ ensures that the products offered not only provide financial protection, but also prioritize justice and balance in economic relations.
The conceptual framework in developing Islamic insurance products that support sustainable finance can be based on ESG principles that are in line with maqasid sharia. Maqasid sharia or sharia objectives is a concept that emphasizes the protection of religion (hifz al-din), soul (hifz al-nafs), reason (hifz al-’aql), offspring (hifz al-nasl), and property (hifz al-mal). In the context of sustainable finance, the development of Islamic insurance products can be directed at investments that support environmental protection (hifz al-nafs and hifz al-mal).
2. Development of Sharia Insurance Products that Support Sustainable Finance Taxonomy
The first way to solve the problem is to encourage the innovation of Islamic insurance products that are more environmentally and socially friendly. These products could include green insurance, where the premiums collected are invested into projects that support renewable energy or environmental protection. This would be in line with the principles of sustainable finance as well as maqasid sharia.
Second, it is important to increase Islamic financial literacy among the public so that the benefits of Islamic insurance that support social and environmental goals are more widely recognized. Islamic insurance institutions can work with the government and non-profit organizations to conduct financial literacy campaigns that emphasize the importance of sustainable finance.
Third, government regulations and policies, such as tax incentives for green insurance products, can help encourage the participation of Islamic insurance companies in supporting the sustainable finance taxonomy. The government can provide additional impetus through fiscal policies that support ESG-based insurance product innovation.
3. Implementation and Evaluation
The implementation of Islamic insurance products that support sustainable finance requires a collaborative approach between the government, insurance companies, and society. The government through its regulations can set certain standards for Islamic insurance products to meet ESG criteria, while insurance companies can work with investors and business partners to create innovative products that support sustainability.
In addition, periodic evaluations of Islamic insurance products that have been launched should be carried out to ensure that these products really have a positive impact on the environment and society. This can be done by involving an independent audit institution that will assess the sustainability of the product based on predetermined ESG indicators.
4. Conclusions and Recommendations
The development of Islamic insurance products in supporting the taxonomy of sustainable finance is a strategic step towards achieving equitable and environmentally friendly economic development goals. With the principles of ta’awun and tabarru’, Islamic insurance has great potential to support sustainable finance through product innovation that focuses on green investment and Islamic financial literacy.
Recommendations include:
First, Islamic insurance companies need to develop more insurance products that support the taxonomy of sustainable finance, such as green insurance or products that focus on social responsibility. Second, the government needs to support regulations and policies that encourage the development of such products, including tax incentives or subsidies for green insurance products.Third, the public and educational institutions need to increase Islamic financial literacy to better understand the important role of Islamic insurance in supporting sustainable finance goals.
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