New Report Urges Islamic Finance to Power the OIC’s Trillion-Dollar Climate Response

A new World Bank–IsDB report warns that OIC countries need over US$1 trillion in climate finance by 2050 and positions the rapidly growing US$4 trillion Islamic finance industry as a powerful engine to bridge this gap. It highlights rising momentum in green sukuk, waqf, takaful, and halal value chain greening while calling for stronger leadership, innovation, and policy coordination to unlock Islamic climate finance at scale.

Climate change is emerging as an existential threat to the 57 member states of the Organization of Islamic Cooperation (OIC), many of which face severe exposure to climate shocks and lack the resources to adapt. A new joint report by the World Bank Group Inclusive Growth and Sustainable Finance Hub in Malaysia and the Islamic Development Bank (IsDB) warns that more than US$1 trillion will be needed by 2050 to safeguard OIC countries against escalating climate impacts. The report positions the US$4 trillion global Islamic finance industry as a uniquely aligned, ethical, and fast-growing system capable of bridging the climate financing gap for the Muslim world.

The Ethical Foundations of a Climate Solution

According to the report, OIC economies could lose over 15% of GDP under a pessimistic climate scenario, highlighting the urgency of mobilizing climate finance at an unprecedented scale. These countries often have weaker adaptive capacity than non-OIC peers, and many depend heavily on climate-sensitive sectors such as agriculture, water, and urban infrastructure. Islamic finance, built on principles of justice (adl), stewardship (khalifah), and shared prosperity, offers a strong natural alignment with climate and sustainability goals. Its grounding in risk-sharing and ethical investment makes it well-suited for channeling long-term capital into mitigation, adaptation, and socially beneficial projects that conventional financing models often overlook.

Rapid Growth, but Massive Untapped Potential

The report shows that sustainable financing in the OIC has grown at a remarkable pace, rising from US$17.8 billion in 2017 to US$82.3 billion in 2024, an annual growth rate of 24.4%, slightly higher than global sustainable bond trends. Islamic sustainable issuances accounted for 16% of this total, contributing US$53.9 billion over the seven years. Sustainable sukuk, in particular, has emerged as the flagship climate finance instrument, expanding from US$464 million in 2017 to US$9 billion in 2024, driven largely by Malaysia’s leadership in green sukuk innovation. Yet the report notes that only one-third of these sukuk are classified as “green,” compared to nearly two-thirds of global sustainable bonds, signaling the need for greater climate focus in Islamic capital markets. Meanwhile, Islamic banks, which hold US$2.8 trillion in assets, remain under-leveraged for climate investment, and Islamic PE/VC financing for clean technology and SMEs remains minimal despite strong potential.

Innovation from Sukuk to Halal Value Chains

The report highlights a range of emerging innovations across Islamic financial instruments that are already contributing to greener economies. Green and sustainability-linked sukuk are being used to finance renewable energy and low-carbon transport infrastructure. Takaful (Islamic insurance) is increasingly deployed to enhance resilience for communities vulnerable to climate disasters. Waqf endowments are re-emerging as an environmental stewardship tool, with Indonesia’s Yayasan Wakaf Hutan Bogor serving as a model for forest conservation and potentially carbon trading. The report also spotlights the vast, underexplored opportunity to green the global halal economy, a multi-trillion-dollar ecosystem spanning food, pharmaceuticals, fashion, logistics, and tourism, by embedding ESG benchmarks and net-zero commitments across halal value chains. Additionally, Islamic climate fintech is gaining momentum, offering digitized transparency and greater financial inclusion for green and community-level projects.

A Call for Leadership to Unlock Islamic Climate Finance

Despite clear momentum, OIC countries face persistent obstacles, including fragmented climate policies, limited market capacity, inadequate data systems, and challenges in accessing global climate funds. To overcome these barriers, the report lays out a three-point call to action. First, Islamic climate finance instruments must be mainstreamed and scaled by building stronger pipelines of climate projects, offering targeted incentives, and deepening collaboration with multilateral development banks. Second, the ecosystem requires accelerated capacity building, knowledge-sharing, and investment in climate data infrastructure to ensure balanced attention to both adaptation and mitigation. Third, there is a need to expand the product landscape, including blended Islamic climate finance structures, innovation platforms, and the wider use of zakat and waqf to support climate resilience for vulnerable populations. The report concludes that only decisive, coordinated leadership across policymakers, regulators, financiers, scholars, and development institutions can elevate Islamic finance into a transformative, trillion-dollar catalyst for climate-resilient, inclusive growth across the OIC and beyond.