The Potential of Islamic Finance for Climate Change Adaptation in Pakistan

Abstract

This study explored how Islamic finance gave a boost to the capacity of the Pakistani government in the field of climate change adaptation capacity by focusing on climate resilient investment. The model, based on the concepts of Maqasid al-Shariah and financial intermediation theory, evaluated the impacts of Islamic green finance and Islamic social finance on climate-resilient investment and their impact on climate adaptation capacity. Partial least squares structural equation modeling was used to analyse data. The study resulted in two important findings: Islamic green finance and Islamic social finance significantly improved the climate-resilient investment and climate-resilient investment significantly improved the adaptation capacity. The results of the mediation analysis showed that both investment approaches conveyed the impact of climate-resilient investment to adaptation capacity. The study underscores the need for the integration of commercial and social Islamic finance, effective governance, and investing in resilient infrastructure, agriculture, water systems and vulnerable communities.