SHARIAH-COMPLIANT GREEN BONDS AND ESG FINANCING: POTENTIAL FOR ISLAMIC FINANCE IN CHINA’S CARBON-NEUTRAL GOALS BY 2060’

Abstract

This article investigates the legal and normative viability of incorporating Shariah-compliant green finance instruments into the People’s Republic of China’s environmental, social, and governance (ESG) regulatory framework. The proposal seems unlikely at first look. Islamic finance is based on religious jurisprudence that incorporates moral assessment into the legality of financial transactions, while China operates under a secular, socialist legal system that is characterized by centralized authority, administrative regulation, and instrumental economic rationality. The two systems have thus been viewed as normatively incompatible. In this article, that assumption is contested. The article examines the legal viability of issuing Shariah-compliant green sukuk within China’s financial system. By using comparative practices from the Gulf states, Malaysia, and Indonesia, it demonstrates how green sukuk have become reputable sustainable finance tools. Despite popular belief, there are no insurmountable obstacles to issuing sukuk under Chinese law. By providing functional equivalents in trust law, corporate vehicles, and contractual agreements, China’s current green bond framework can support sukuk-like structures. A functional equivalency model for Shariah governance is also suggested in the article. The article argues that it is legally possible, normatively enriching, and strategically consistent with China’s international economic engagement to incorporate Shariah-compliant green finance into China’s ESG framework. More broadly, it shows how the future of sustainable finance may be strengthened by principled ethical diversity rather than normative uniformity. Islamic Finance.