The Sustainable Responsible Investment and Islamic
Finance for Achieving Sustainable Development Goals
(SDGs) in Indonesia
Rani Puspitaningrum, Darmawati Muchtar, Andrea Zulfa, and Ratna Husein
Faculty of Economic and Business Universitas Malikussaleh, Aceh, Indonesia
Abstract. This study aims to investigate the influence of SRI-KEHATI (The
Sustainable Responsible Investment in Indonesian Biodiversity), JII (The Jakarta
Islamic Index) and FOREST (forest area) on three Sustainable Development
Goals (SDGs) in Indonesia. The data of this study retrived from World Bank,
Indonesia Stock Exchange and Central Bank of Indonesia. This study used time
series data from 2009 to 20016. The multiple regression analysis methods is
apply to achive the research objective and answer the research hypotheses. The
results shows that SRI-KEHATI have positive and significantly affacted 8th and
13th SDGs goals, but it has negative on 15th SDGs goals. Moreover, JII has
negative and significant impact on 8th SDGs but insignificant impact on 13th and
15 SDGs goals. The negatif of JII implies that reducing carbon emission levels
as an indicator of climate change and environmental sustainability that
emphasizes the important role of forests as life support is also expected to be
aligned with economic growth. Then, FINANCING seems do not have any
significant impact for the three SDGs. In sum, the SRI-KEHATI index has an
important indext to achived these sustainable development goals.
Keywords: SRI-KEHATI · JII · Financing · Sustainable Development Goals
(SDGs)
1 Introduction
Islamic finance and Sustainable Responsible Investment (SRI) also known as "Socially
Responsible Investment" have experienced rapid development in recent years. The
similarity of the nature, values, and characteristics of both for some people can bridge
the sides of Islamic and conventional finance so that they have a more varied portfolio.
Islamic finance values that prioritize distribution, social justice and environmental
sustainability based on the Qur'an and Hadith are also partly a component of forming
SRI products. As reported from page http://kehati.or.id/ that SRI products are products
that are considered to have various forms of consideration in their efforts relating to
environmental care, corporate governance, community involvement, human resources,
human rights human, and business behavior with business ethics that is accepted at the
international level [1].
In this regard, Indonesia has a very large market share potential for these two products,
supported by a majority of more than 80% of the population who are Muslim. The dualism
of the financial system that runs in Indonesia provides several benefits to the public to
Puspitaningrum, R., Muchtar, D., Zulfa, A. and Husein, R.
The Sustainable Responsible Investment and Islamic Finance for Achieving Sustainable Development Goals (SDGs) in Indonesia.
DOI: 10.5220/0009837400002900
In Proceedings of the 20th Malaysia Indonesia International Conference on Economics, Management and Accounting (MIICEMA 2019), pages 133-139
ISBN: 978-989-758-582-1; ISSN: 2655-9064
Copyright
c
 2022 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
133

have more alternative investment choices that do not conflict with their religion and
beliefs without ignoring the prospect of income gains that will be received and ultimately
impact on economic growth. In response to this, it is not considered excessive if Indonesia
as a strategic financial market can become a country pilot project for other countries in
realizing a financial system that is in line with the principles, objectives, and sustainable
development goals that are on the agenda of the United Nations.
The sustainable development agenda launched by the United Nations is the blueprint
to achieve a better and more sustainable future for all. They address the global challenges
the world has, including those related to poverty, inequality, climate change,
environmental degradation, peace and justice, represented by the 17 SDGs [2]. Therefore,
related to the nature and characteristics of Sustainable Responsible Investment (SRI) and
Islamic finance, both are expected to make a meaningful contribution to the realization of
the goals of sustainable development, especially Goals No. 8 (Decent Work and Economic
Growth), No. 13 (Climate Action), and No. 15 (Life on Land).
2 Literature Review
Sustainable development has been defined as development that meets the needs of the
present without compromising the ability of future generations to meet their own needs.
Sustainable development calls for concerted efforts towards building an inclusive,
sustainable and resilient for future for people and planet. For sustainable development
to be achieved, it is crucial to harminize three core elements: economic growth, social
inclusion and environmental protection. These elements are interconnected and all are
crucial for the well-being of individuals and societies. Eradicating poverty in all its
forms and dimensions is an indispensable requirement for sustainable development. To
this end, there must be promotion of sustainable, inclusive and equitable economic
growth, creating greater opportunities for all, fostering equitable social development
and inclusion, and promoting integrated and sustainable management of natural
resources and ecosystems (United Nation, n.d).
Three core elements in sustainable development are reflected in the 17 sustainable
development goals as shown below:
Fig. 1. The Sustainable Development Goals (The United Nation).
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134

Islamic finance as part of the sustainable development agenda has a very important
role in achieving the existing SDGs. The Islamic Research and Training Institute (IRTI)
has undertaken pioneering research that underlines the fact that many Sustainable
Development Goals (SDGs) clearly align with Maqashid al-Shari’ah (MaS). The MaS-
driven Islamic finance, therefor, would work towards achieving the SDGs. Islamic
finance aims to promote an economic concept that extends beyond being the component
of a financial system, but as part of a total value-based social system. The Shari’ah,
which governs the Islamic financial system has ample injunctions which emphasize the
need to care for the environment and forms of life on earth while ensuring the proper
usage of natural resources [3]. The explanation given by (Obaidullah, 2018) formed a
conclusion that Islamic financial development relates to SDGs, especially targets of
decent work & economic growth (No. 8), climate action (No. 13), and life on land (No.
15).
The United Nation give a notion for Sustainable Development Goals (SDGs) No. 8
about decent work and economic growth is to promote sustained, inclusive and
sustainable economic growth, full and productive employment and decent work for all
through several targets and indicators. One of them is Adjusted Net National Income
per Capita (annual % growth). Furthermore, SDGs No 13 is about to take urgent action
to combat climate change and its impact with CO
2
emissions (metric tons per capita) as
main indicators. While SDGs No. 15 is to protect, restrore and promote sustainable use
of terrestrial ecosystem, sustainably manage forests, combat desertification, halt and
reverse land degradation and biodiversity loss with its forest area (10
6
km
2
) as an
indicator [4].
Financial development is usually defined as a process that brings enhancement in
quantity, quality, efficiency and efficacy of financial intermediary services. Thus,
process involves the interaction of many financial activities and institutions e.g:
financial market, banking and non-banking institution. Indicators of Islamic financial
development include Islamic deposit money banks, private credit provided by Islamic
banks, and Sukuk [5]. In this study, the Jakarta Islamic Index representing the Islamic
financial market and private credit provided by Islamic banks (financing).
Furthermore, Grassa & Grazda (2014) research proved a positively significant
relationship between private credit given by Islamic banks (financing) dan economic
growth. While Shahbaz, et.al (2013) stated financing significantly towards carbon
emissions in Malaysia [6]. Likewise, research conducted by Javid & Sharif (2016)
mentions similar results but uses financial development indicators in general in
Pakistan, namely domestic credit to private sector [7], [8]. While Alam et.al (2015)
suggested the opposite results [9].
Sustainable Responsible Investment (SRI), sometimes also referred to as ”Socially
Responsible Investment“, is generic term that covers any type of investment process
which combines investors, financial objectives with their concerns regarding
environmental, societal and governance (ESG) issues (Moghul & Safar-Aly, 2014 cited
in Marwan & Engku Ali, 2016) [10]. In line with Islamic finance, Sustainable
Responsible Investment (SRI) has its roots in religious value, and specifically the
objective to develop prosperous, just and egalitarian economic and social structure
economic and social structure. Economic development and growth, along with the
social justice, are the foundational elements of an Islamic economic system in its all
members of an Islamic society must be given the same opportunities to advance
The Sustainable Responsible Investment and Islamic Finance for Achieving Sustainable Development Goals (SDGs) in Indonesia
135

themselves; in other words, a level playing field, including equitable access to natural
resources [11].
Based on the literature review and the theory have been explained above, thus the
research hypotheses conducted as follows:
1. Sustainable Responsible Investment (SRI) and Islamic Finance have a
significant impact on SDGs No. 8 (Decent Work and Economic Growth)
2. Sustainable Responsible Investment (SRI) and Islamic Finance have a
significant impact on SDGs No. 13 (Climate Action)
3. Sustainable Responsible Investment (SRI) and Islamic Finance have a
significant impact on SDGs No. 15 (Life on Land)
3 Reseach Methodology
This study uses economic and financial variables taken from various sources. The
dependent variables used are Adjusted Net National Income per Capita (% annual
growth) (ADJNNI), Carbon Emissions per Capita (metric tons) (CO2CAPITA) and
Forest Area (10
6
km
2
) (FOREST). The independen variable are Sustainable
Responsible Investment Foundation for Biodiversity (SRIKEHATI), Jakarta Islamic
Index (JII), and Private Credit Given by Islamic Banks (FINANCING) in Indonesia for
the period 2009-2016. There are several sources for the available data gathered i.e,
World Bank, Indonesia Stock Exchange, and Central Bank of Indonesia. This study
applied the multiple regression analysis and the model estimation are as follows:
SRIKEHATI + JII+FINANCING = ADJNNI. (1)
SRIKEHATI + JII+FINANCING = CO2CAPITA (2)
SRIKEHATI + JII+FINANCING = FOREST (3)
The general model estimation of multiple regression also can be write as follows:
ADJNNI

=β

+β

SRIKEHATI

+β

JII

+β

FINANCING

+𝜀

....................(4)
CO2CAPITA

=β

+β

SRIKEHATI

+β

JII

+β

FINANCING

+𝜀

.............(5)
FOREST

=β

+β

SRIKEHATI

+β

JII

+β

FINANCING

+𝜀

....................(5)
4 Result and Discussion
This section present the results of the study and discussion the effect of SRIKEHATI,
JII and FINANCING on SDGs Goals using multiple linear regression analysis with
four research model as presented at Table 4.1.
In Table 4.1 shows that the SRI-KEHATI has positive and significant impact on
both SDGs (Decent work and economic growth) and (Climate action) measured by
ADJNN and CO2CAPITA with a positive coefficient at 1 percent and 5 percent level
of significant respectively. This finding indicates that increase the Sustainable
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136

Responsible Investment Foundation for Biodiversity lead to increase SDGs. This
finding support the hypotesis expectation and consistent with the theory. The contradict
finding find that the SRI-KEHATI has negative and significant impact on SDGs (Life
on land) measured by FOREST. This finding is inconsistent with the theory.
Table 1. Estimation Results of SDGs Goals.
SDGs Goals No. 8 (Decent Work and Economic Growth)
Variable Coefficient Std. Error t-Statistic Prob.
SRIKEHATI
JII
0.244070
-0.175612
8.340475
-144.2016
0.040674
0.032743
8.200419
174.2135
6.000689
-5.363384
1.017079
-0.827729
0.0058
0.0039
0.3666
0.4543
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)
0.952960
0.917679
1.963194
15.41652
-13.97550
27.01108
0.004083
FINANCING
C
SDGs Goals No. 13 (Climate Action)
Variable Coefficient Std. Error t-Statistic Prob.
SRIKEHATI
JII
FINANCING
0.002324
-0.000696
0.122262
-1.324780
0.000805
0.000648
0.162204
3.445939
2.888381
-1.074453
0.753756
-0.384447
0.0446
0.3431
0.4929
0.7202
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)
0.929536
0.876688
0.038832
0.006032
17.40918
17.58888
0.009088
C
SDGs Goals No. 15 (Life on Land)
Variable Coefficient Std. Error t-Statistic Prob.
SRIKEHATI -0.000372
5.58E-06
0.008210
13.63076
7.38E-05
5.94E-05
0.014871
0.315920
-5.042371
0.093957
0.552084
43.14620
0.0073
0.9297
0.6103
0.0000
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)
0.977563
0.960735
0.003560
5.07E-05
36.52487
58.09222
0.000937
JII
FINANCING
C
Notes: The significant level of probality are 1%, 5% and 10%.
The Sustainable Responsible Investment and Islamic Finance for Achieving Sustainable Development Goals (SDGs) in Indonesia
137

Furthermore, Jakarta Islamic Index (JII) has negative and significant impact on 8
th
SDGs goals at 1 percent level of significant, but insignificant impact on 13
th
SDGs goals
(ADJNNI). The negative impact implies that increase the JII would be decrease the
SDGs goals (ADJNN and CO2CAPITA). The climate action indicators used in this
study are carbon emissions per capita and the forest area is expected to represent the
life on land indicator. Climate action targets to combat climate change and its impact
while life on land is to protect, restore and promote sustainable use of terrestrial
ecosystems, sustainably manage forests, combat desertification, halt and reverse land
degradation and biodiversity loss.
However, the JII has positive impact on 15
th
SDGs goals (FOREST) but also
insignificant. Similarly, with FINANCING, find that there is no significant impact on
three SDGs goals, but it has positive impact. This finding consistent with theory
although insignificant.
Issues regarding the environment and sustainable finance occupy strategic studies
in finding solutions to climate change problems caused by human economic activities
that are not based on just and sustainable ethical, values and norms. The community no
longer becomes indifferent and ignores the fact that every investment and the economic
decision they make in order to increase their income and welfare has an impact on the
surrounding environment.
The SRI-KEHATI Index and JII are clear evidence that people's choice to invest in
stocks that pay attention to environmental sustainability and sharia principles can
increase a country's national income which means it can also contribute to SDGs No.
target. 8 decent work and economic growth. This research is in line with the theory
presented earlier that financial development, one of which is marked by the
development of capital markets has a significant effect on economic growth [5], [11].
Furthermore, private credit provided by Islamic banks also known as financing showed
insignificant results in this study.
Sustainable Development Goals No. 13 climate action and 15 life on land can be
achieved from the contribution of increased investment in companies officially listed
on the SRI-KEHATI index. Companies listed on the SRI-KEHATI index are companies
engaged in the environmentally friendly economic and industrial sectors and have gone
through a selection process mechanism which is carried out through two stages, namely
the first stage is the initial screening of negative core business selection and financial
aspects then at the stage second is the fundamental aspect.
5 Conclusion
This study provides a comprehensive picture that the existence of Sustainable
Responsible Investment (SRI) and Islamic finance has a role in achieving the
Sustainable Development Goals announced by the United Nations. However, real
contributions can only be made by Sustainable Responsible Investment (SRI) while
Islamic finance's contribution has not been seen significantly, so there is a need for hard
efforts to improve the development of Islamic finance from time to time. In addition,
diversification in financial investment options involving Sustainable Responsible
Investment (SRI) and Islamic finance can also be utilized to the maximum extent in
supporting the achievement of other SDGs targets.
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138

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