ssrn-4321320

Towards Green Economy Transformation
Through Islamic Green Financing

Ferry Syarifuddin
Bank Indonesia, Jakarta, Indonesia
Abstract
Purpose – This study investigates the preferences of Islamic Financing
Instruments to promote green economy transformation.
Design/methodology/approach – This study uses the ANP-BOCR (Benefit,
Opportunity, Cost, Risk) and Delphi methods, with two groups of experts as
the respondents, namely academicians and practitioners.
Finding – The result shows green economy transformation through Islamic
green financing could be implemented in Indonesia. In term of priority, benefit
is the most preferable aspect to consider for green economy transformation,
particularly in connection with damage prevention and reduction. This is
followed by an opportunity (developing alternative environmentally friendly
resources); cost (the expense of developing human resource capability, and
investment cost); and risk (high transition costs). With regard to the Islamic
green financing choices, “Islamic Asset Management” and “Islamic corporate
and investment banking” are suitable for short-term and long-term green
tranformation strategy, respectively.
Research limitation/implication – The data is collected from only limited to
25 expert opinions from academicians and practitioners in Indonesia, which
may not fit for other countries.
Practical implications – This study serves as a reference for stakeholders in
promoting green economic transformation through appropriate Islamic
financing instruments.
Social implications – Islamic green financing could promote greener, social,
or sustainable economic activities including green economy transition.
Originality/value – This study is the first to investigate the preferences of
Islamic Financing Instruments to promote green economy transformation
through ANP.
Keywords Green Economy Transformation, Islamic Green Financing, ANP,
BOCR
Paper type Research paper
This research was conducted using the fund from Sharia Economy and
Financial Department, Bank Indonesia. The author wishes to thank
Solahuddin Al-Ayubi and Daffa Rizqi Prayudya for his valuable research
assistance.
Electronic copy available at: https://ssrn.com/abstract=4321320

Introduction
A clear relationship exists between environmental issues and economic
performance (Tienhaara, 2016). In recent years, ecological imbalances,
resource depletion, and the threat of environmental contamination have
entered economic and political discourses, as they are inextricably linked to
the issue of social progress and human survival (Liu et al., 2020).
Furthermore, the brown economy will increase poverty and inequalities
(Kousar et al., 2022). To address these difficulties, various fundamental
conceptions of development have emerged. “Green Economy” has been
commonly used as an “umbrella term lacking operationalization” among
various ideas (Loiseau et al., 2016). UNEP (2011) described the green economy
idea as “... one that improves human well-being and social fairness while
substantially decreasing environmental risk and ecological scarcities.” This
definition demonstrates that the green economy concept encompasses not
solely ecological issues but also a broader range of inclusive, efficient socio-
economic development features.
In transitioning to a green economy, economies are likely to face various
economic and financial risks coming from the different strands of the global
decarbonisation trend and the accelerating effects of physical climate risk,
transition risk, and biodiversity loss. Green economic transformation requires
government intervention to ensure its successful and efficient implementation
(Borel-Saladin and Turok, 2013). Different policies have been implemented in
developing and developed nations (Megwai, Njie and Richards, 2016).
Regulatory institutions, indeed, play important roles in facilitating the
transition to a green economy. However, significant policy-incentive
frameworks are required for a more effective transition (Berensmann and
Lindenberg, 2016). Regarding this type of policy, Azhgaliyeva et al. (2019)
attempted to categorise policies for the transformation to a green economy
into six instruments, namely, economic, information and education, policy
support, regulation, research and development, and voluntary. The economic
group comprises investment, fiscal, financial, and certificate policy
instruments, wherein financial policies have been the most widely utilised.
To that end, the government has a role in determining its policies for
financial institutions in encouraging the transformation of the green economy.
Financial institutions can shift investments away “from greenhouse gas, fossil
fuel, and natural resource-intensive industries towards more resource-
efficient technologies and business models” (Volz, 2018). Green finance refers
to the concept of sustaining the green economy through the actions of
financial institutions (Berensmann and Lindenberg, 2016). It has been
demonstrated that the regulation of financial institutions promoting green
finance transformation greatly reduces the negative environmental impact of
corporate operations (Akomea-Frimpong et al., 2021; Muganyi et al., 2021;
Raberto et al., 2019; Zhang et al., 2021). While green technologies are
somewhat inefficient when the economic structure is predominantly brown
(the current state), they will become comparatively efficient once a
predominantly green economic structure has been achieved (Kemp-Benedict,
2014). This issue emphasises the need for central banks and other financial
authorities to offer sufficient incentive mechanisms to assist financial

institutions in promoting the transition to a green economy (Alexander, 2014;
Alexander and Fisher, 2020; Dikau and Volz, 2021, 2018).
Indonesia offers a good case study due to several reasons. Indonesia is
one of the fastest-growing economies in the Asia-Pacific region and has a
substantial demand for infrastructure investment. Indonesia’s expansion in
green finance has been propelled by a combination of high investment
demand, rapid economic growth, and increasing recognition of the need for a
green economy (Guild, 2020). However, the acquisition of financial capital
through green financing is not often the simple part, not only in Indonesia
but also in other developing nations (Guild, 2020; Liebman et al., 2019). As
such, the financing of greener investment projects is not without risk, to
which can be added the risks of transitioning to a green-dominated economic
system (Alexander, 2014; Tienhaara, 2016; Weng et al., 2018). There is also
the issue of Indonesia’s reliance on its extractive sectors (Martawardaya et al.,
2022), fundamental conflicts between “actors with vested interests” in those
sectors (Swainson and Mahanty, 2018), and “political class barriers” (Guild,
2020), as well as the fact that green investments do not currently yield a
higher rate of return than “conventional” investments (Swainson and
Mahanty, 2018).
Indonesia is also the most populous Muslim-majority nation in the world.
The size of the country’s Muslim population has led to the rapid expansion of
its Islamic banking infrastructure. As such, the precise mechanism of how to
finance the transition from a predominantly brown economy to a green
economy for the Muslim majority remains an open subject, which, alongside
Islamic financial tools, is difficult for Indonesia to address, as it is for other
growing economiesIndonesia was the only nation to issue green Islamic bonds
in 2018, thereby laying the groundwork for other Islamic green finance
instruments (Siswantoro and Surya, 2021). Scholars have claimed that
“Islamic finance is naturally compatible with the concepts of green finance,
which seek to direct investments toward environmental-benefitting ends” (Liu
and Lai, 2021). The existence of an Islamic financial infrastructure in
Indonesia enables policymakers to further the green transformation goal by
utilising Islamic finance tools, including Islamic retail banking, business and
investment banking, asset management, insurance, weather derivatives,
sukuk, and social finance (Noh, 2019). The availability of Islamic finance
infrastructure in Indonesia enables policymakers to promote the
transformation to a green economy through the use of Islamic financing
instruments.
To the best of our knowledge, this is the first study to undertake such an
evaluation. Numerous studies discusses (World Bank, 2019; Liu and Lai,
2021; Musari, 2021; Almonifi, 2022), however, none of them are assessing
suitable Islamic green financing instrument for green transformation. Given
by the gaps above, the main objective of this paper is to assess the preferences
for alternative Islamic financing instruments that promote green economy
transformation in relation to socio-economic and institutional-political
challenges, its impact on the overall economic performance of the real and
financial sectors, and possible risks in the process of transitioning to a green
economy, along with policies related to green economy transformation.

This study built an Analytic Network Process Benefits, Opportunities,
Costs, and Risks – ANP BOCR (Saaty and Vargas, 2013) – model and gathered
primary data to conduct the assessment. The primary data, in the form of
expert opinion, were gathered from related stakeholders (academicians and
Non-Governmental Organisation) for the ANP model (pair-wise comparison
questionnaire) between June and July 2022. During this time, I also
conducted several in-depth interviews to deepen the analysis of the ANP
results, especially concerning the merits and shortcomings of Islamic green
financing instruments. The findings of this study will assist the relevant
authorities, particularly in Indonesia, in developing a road map for the
transition to a green economy through regulation of the Islamic finance
system. The outcomes of this research can also be anaysed by other
economies for their green economy transformation roadmaps.
Briefly stated, the initial findings indicate that benefit was the BOCR
criterion that should be prioritized when conducting a green economy
transformation, particularly in relation to damage prevention and reduction.
This is followed by an opportunity (primarily related to developing alternative
environmentally friendly resources), cost (the expense of developing human
resource capability, and investment cost), and risk (high transition costs). The
second result demonstrates that Islamic Asset Management is the most
favored Islamic financial instrument to carry out a transition to a green
economy using the standard formula. The third result reveals that "Islamic
Corporate and Investment Banking" is the most favored financial instrument
for long-term periods, meanwhile, "Islamic Asset Management" is more
favored for short-term periods.
The remainder of this paper is organised as follows. The second section
examines relevant theories and previous literature. ANP-Delphi method with
BOCR model is discussed in section 3. The results and discussions are
detailed in section 4, while in section 5, conclusions are drawn, followed by
recommendation and policy implication.
Literature review
Green Economy
The green economy is an alternative vision for growth and development; one
that can generate economic development and improvements in people’s lives
in ways consistent with advancing both environmental and social well-being
(Söderholm, 2020). According to UNEP (2011), the green economy is
supported by three major pillars: low-carbon, resource efficiency, and social
inclusion. Following the same spirits, Law et al. (2016) suggested other
definitions for the green economy, green growth, and low-carbon development.
Green economy and green growth principles intersect in their holistic
approach with growth and economic development, environmental protection,
low-carbon development, resilience, resource efficiency, ecological
sustainability, human well-being, inclusivity, and equity. Altogether, a green
economy can have a positive effect on reducing emissions, fossil fuel
dependency, particularly in the energy sector, and contributing to more
sustainable use of natural resources. Moreover, it has been found that
investments in low-carbon development and the management of ecosystem
services promote more robust economic expansion over the medium and long
term (Musango, Brent and Tshangela, 2014).

Based on these concepts, Kaggwa et al. (2013) considered the green
economy a pathway to sustainable development due to its ability to address
the interdependence between inclusive economic growth, social protection,
and natural ecosystems. Therefore, the green economy perspective focuses
on the root cause of environmental degradation, namely the current economic
structure. In this manner, it may offer solutions that are moderately resistant
to potential setbacks such as rebound effects (Droste et al., 2016). At the same
time, however, the green economy model presents political implementation
difficulties (Barbier, 2012) and significant transaction costs (Barbier, 2011).
Transforming the economy requires innovation in terms of available
technology, organisational support, market conditions, the broader social
backdrop, and overarching governance.
Green Economy Transformation Risks and Green Islamic Financing

Islamic finance is defined as a system “based on Sharia law that prohibits
interest, uncertainty, and investment in unlawful sectors defined by Islam”
(Sekreter, 2017). Basically, the principles of Islamic finance align with the
concept of a green economy. The latter attempts to promote human well-being
and equity, and reduce environmental degradation (UNEP, 2011). Based on
the similarity between the two concepts, scholars have argued that “Islamic
finance is inherently compatible with principles of green finance that seeks to
channel investments towards purposes that bring environmental benefits”
(Liu and Lai, 2021).
Various green financing instruments have been developed over the years.
Following Noh (2019), five forms of green financing instruments could be
adopted using Islamic principle. They cover (1) retail banking, (2) corporate
and investment banking, (3) asset management, (4) insurance, and (5)
weather derivatives. Furthermore, following Musari (2021) and BWI and
UNDP (2022), this study also employs (6) sukuk, and (7) Islamic social finance
as alternatives.
Retail banking products and instruments could be in form of green
mortgages, green home equity loans, green commercial building loans, green
car loans, and green credit card. Turning to corporate and investment
banking, the offered products are green project financing, green
securitization, green venture capital and private equity, green indices, and
carbon commodities. Meanwhile, asset management includes green fiscal
funds, green investment funds, and carbon funds. Green insurance and
carbon insurance are included in insurance product. Weather derivative is
financial instrument that can be used to reduce risk associated with
unpredictable weather conditions. Sukuk is a bond that following Islamic
principle. Last but not least, Islamic social finance includes zakah, infaq,
sadaqah, and waqf. To notify, the products offered above is adjusted with
Islamic principle.
The transition to a green economy is not without risk. On the contrary,
green economic policies are often associated with increased risk for the real
and financial sectors, at least in the short term (where brown industries
dominate the economic structure) (Noh, 2019). The risks of green economy
transformation tend to be more pronounced in developing countries, where it
remains common practice to rely on brown industries in the quest for high

economic growth. The uncertainties associated with a low-carbon transition
mirror those that investors, business owners, entrepreneurs, consumers, and
workers face in any intentional socio-technological transition (Kemp-
Benedict, 2014). One of the core principles of Islamic finance is to mitigate
uncertainty. Hence, it is expected that the use of Islamic green financing
instruments could mitigates the risks involved in transitioning toward a green
economy.
Methodology
This study uses the ANP-Delphi with BOCR (Benefit, Opportunity, Cost, Risk)
model. Following T. Saaty and Vargas (2006), ANP is a mathematical theory
that can examine the effect using an assumption-based technique for
problem-solving. The method is utilised as a solution, with attention paid to
changing the problem's complexity by synthetic decomposition and use of a
priority scale that yields the maximum priority effect.
Regarding the Delphi procedure, it is a well-known structured
communication technique which relies on a panel of experts to solve complex
problems (Landeta, 2006). During earlier period, Delphi is a decision-making
approach to predict the impact of technology on warfare (Dalkey and Helmer,
1963). However, to this day, numerous studies used Delphi for ANP problem
decomposition and framework constsruction (García-Melón, Gómez-Navarro
and Acuña-Dutra, 2012; Akhlagh et al., 2013; Sakti, Viverita and Husodo,
2021; Kumar et al., 2022). A Delphi study does not depend on a statistical
sample that attempts to be representative of any population. It is a group
decision mechanism requiring qualified experts who have a deep
understanding of the issues. To that end, the selection of experts is a an
fundamental aspect of this method (Okoli and Pawlowski, 2004). In this study,
the experts answer questionnaires in two or more rounds. After each round,
the author serves an anonymous summarized experts' responses from the
previous round, as well as the reasons they provided for their verdicts. The
experts are encouraged to adjust their previous answers based on the replies
of other experts of their panel. In light of these, the answers range will
decrease and the group will converge towards the consensus answer
(Gamarra, 2009).
BOCR model is chosen due to its ability to investigate the positive and
negative aspects of project (Wijnmalen, 2007), in this case green economy
transformation. This is supported by numerous literatures that reported
green economy transformation carries both benefit and drawback (Islam et
al., 2014; Kemp-Benedict, 2014; Musango, Brent and Tshangela, 2014;
Söderholm, 2020). Following (Saaty and Vargas, 2006), the formulation is
explained as follows.
Multiplicative with weight as the powers:
𝑤 𝑤
𝐵𝑝 𝑏 × 𝑂𝑝 𝑜
𝑤 𝑤
𝐶𝑝 𝑐 × 𝑅𝑝 𝑟
Additive with weights as coefficients:
𝑤𝑏 × 𝐵𝑝 + 𝑤𝑜 × 𝑂𝑝 + 𝑤𝑐 × 1/𝐶𝑝 + 𝑤𝑟 × 1/𝑅𝑝

Where 𝐵𝑝 , 𝑂𝑝 , 𝐶𝑝 , and 𝑅𝑝 are the normalized overall priorities of the
alternatives on benefits, opportunities, costs and risks respectively, computed
using underlying hierarchic or network models. Meanwhile, 1/𝐶𝑝 and 1/𝑅𝑝 are
the normalized reciprocals of 𝐶𝑝 and 𝑅𝑝 . Lastly, 𝑤𝑏 , 𝑤𝑜 , 𝑤𝑐 , and 𝑤𝑟 are the
normalized weights for each of the four factors, respectively, established using
personal values arguments.
Figure 1. Summary of the ANP BOCR Model

Source: Tornjanski et al., (2014)
The following formula was used to determine short-term and long-term

priorities (Emanuel and Cefalu, 2002; Ozdemir and Saaty, 2005; Saaty, 2008).
Short-term calculation is denoted by 𝐵 × 𝑂/𝐶 × 𝑅 formula. This formula is only
applicable when one is certain that the relative measurements have the same
magnitude; i.e., they are equal. Applying this formula produces no negative
results and yields minimal benefit. Meanwhile, bB+oO-cC-rR 𝑏𝐵 + 𝑜𝑂 + 𝑐𝐶 +
𝑟𝑅, or so-called the additive formula, is method for calculating long-term
alternative. Rangking model’s priority is illustrated by 𝑏, 𝑜, 𝑐, 𝑎𝑛𝑑 𝑟. In this
instance, the ultimate answer may be negative.
In term of robustness check, following García-Melón et al. (2012), it is
important to remark that this procedure does not need further sensitivity
analysis as the Delphi procedure itself is an analysis of the robustness of the
participants' judgments. When applying ANP a sensitivity analysis (by slowly
modifying the weight of each criterion in the limit supermatrix) would show if
the final evaluation and ranking are reliable. The final aim of such a procedure
is to find out if the ranking would change if the evaluators had been wrong by
a certain percentage with the criteria weight. By using Delphi, evaluators
ensure they are not mistaken, that is to say, they truly believe what they have
judged, and thus the sensitivity analysis is not necessary.
Data
The study utilises primary data from in-depth interviews with a number of
academicians and practitioners, which were conducted to collect in-depth
information about the benefits, opportunities, costs, and risks associated with
the transition to a green economy through Islamic green financing. 25 green
economy experts were involved.

The respondents from a group of experts were selected based on the
following
Criteria, which have in-depth knowledge/understand of theory and practice
in (1) conventional economic, (2) Islamic economic, (3) direct experience of
green economy/finance agenda, and (4) green economy/finance related
publication. Furthermore, Aceh, West Sumatra, East Java, and West Nusa
Tenggara region are chosen. These regions are chosen due to several relevants
green economy/finance project, such as Banda Aceh Green City Initiation
2034 by Banda Aceh City Bappeda practice of waqf plantations and green
agriculture in the East Java area, sustainable agricultural practices by
millennial farmers in West Sumatra and West Nusa Tenggara. Background
details of respondents are served in Table 1 below.
Table 1. List of Respondents

No Name Background
Academician:
1 RE Economics Employee of the Wali Nanggroe Darussalam Government
2 HF State Islamic University in Ar-Raniry
3 AS Syiah Kuala University
4 TD Syiah Kuala University
5 AM Brawijaya University
6 HP Malang State University
7 AY Bukittinggi State Islamic University
8 IZ Bukittingg State Islamic College
9 DW Mataram University
10 MA Mataram University
Practicioner:
11 WR Aceh's Regional Development Planning Agency (BAPPEDA)
12 JN Environment and Forestry Department, Aceh Province
13 KA Bogor Forest Waqf
14 SW Penabulu Foundation
15 NA Malang Islamic University
16 MA Islamic Boarding School Riyadul Jannah
17 BP Malang Heritage Society
18 FA Andalas University
19 AB Organic Farmer, Foundation for Penabulu
20 RH Organic Farmer, Foundation for Penabulu
21 NH Department of Cooperatives, SMEs, and Trade employee, Bukittinggi
22 RS Regional Secretary for the Province of West Nusa Tenggara
23 MW Organic Farmer, Foundation for Penabulu
24 AW Organic Farmer, Foundation for Penabulu
25 RM Educational and Empowerment Center for Independent Agriculture
Using a questionnaire (attached in Appendix 1) adopting a likert scale

from 1 to 9 and the ANP approach, the responses in the in-depth interviews
were measured. In the form of a framework model, data and information
regarding the viewpoints of the academicians and practitioners were
assembled. When the questionnaire responses and/or opinions had been
collected, the next step was to evaluate their opinions using the Super
Decision and Microsoft Excel programmes.

In-depth interviews were conducted with these respondents in order to
obtain their viewpoints on the green economy research subject. It is preferable
to conduct such interviews as respondents can openly express their thoughts
on the particular topic (Milena, Dainora and Stancu, 2008).
Results and analysis

Results on Rater Agreement
As shown in Table 2, the ANP-Delphi data gathered from the two types of
respondents converged with a significant Kendall's W score as the metric used
to determine rater agreement. Following Shweta et al. (2015), 10 percent is
used for threshold in determining consistency. The findings of the rater
agreement (W score) and the p-value as an indicator of robustness indicate
that all respondents and practicioners group agreed on all sub-network
criteria clusters (benefit, opportunity, cost, risk) with different levels of
agreement. However, regardless of none of W scores are close to 1, following
Schmidt (1997), it still safe to consider that result as an agreement. This is
because it becomes increasingly harder to achieve high W scores when the
number of raters increases, and consequently, low W scores can become
significant.
Table 2. Delphi Results on Rater Agreement

W Score
Criteria
Academician Practicioner All
Benefit 0.491*** 0.549*** 0.512***
Opportunity 0.216*** 0.134** 0.170***
Cost 0.198* 0.394*** 0.268***
Risk 0.204** 0.325*** 0.263***

***significant at the 0.01 level; **significant at the 0.05 level; *significant at the 0.10 level
Turning to ANP result in Table 3, despite of cost and risk insignificancy

within academician, whole criterias in all respondent are significant. To that
end, it could be inferred that all sub-network criteria clusters are important
to be included in the model. This is in line with UNEP (2011) views that green
economy transition poses benefits, challenges, and risk, be it using Islamic
financing or not.
Table 3. ANP Results on Rater Agreement

W Score
Criteria
Academician Practicioner All
Benefit 0.332*** 0.343*** 0.300***
Opportunity 0.231** 0.197*** 0.165***

Cost 0.104 0.188*** 0.127***
Risk 0.163 0.172** 0.153***

All in all, with regard to the rater agreement of both Delphi and ANP
results, the W score of all respondents are significant in 10 percent. All
respondents show 100 percent convergence without any deviation. Following
T. Saaty and Vargas (2006), this number is acceptable for qualitative research.
First Layer - BOCR Cluster Priority

In analyzing BOCR cluster priority in first layer, it could be inferred from
Table 4 that benefit is the most prioritized cluster, followed by opportunity,
cost, and risk, consecutively. Furthermore, all of the results, be it
academicians, practicioners, and all, are showing significancy at 1 percent
level, which imply that all responses are matched and consistent. Following
the same spirits, Gunay et al. (2022) argue that various regions worldwide are
exploring ways to move their economies to be greener today due to the
potential benefits. Similarly, Wilson (2019) pointed out the importance of
green transformation benefit lies within further environmental damage
prevention. Furthermore, the transition to a green economy may generate
advantages for present and future generations and assure sustainability.
Table 4. ANP BOCR First Layer Model Priority

BOCR Cluster Academician Practitioner All
Benefit 0.455 0.286 0.424

Opportunity 0.141 0.286 0.227
Cost 0.263 0.286 0.227
Risk 0.141 0.143 0.122
Inconsistency 0.004*** 0.000*** 0.004***
Kendall’s W 0.127 0.083 0.078
X2 3.81 3.74 5.868
P-value 0.283 0.291 0.118
Second Layer - BOCR Sub-Network Cluster Priority

Turning to benefit sub-network cluster in Table 5, compared with other
sub-criterias, the damage prevention and reduction obtain highest weight
value, which indicate that all of the respondents are agreed that damage
prevention and reduction must be prioritized. Compared with other sub-
criterias, it weight value is the highest. Furthermore, all group of respondents
are showing significancies at 1 percent level, thus imply consistency of of the
responses. Similar to previous result, as the inconsistency value is less than
10%, it indicates that the sub-network benefit cluster is consistent. Human
survivability is at the finest (Liu et al., 2020), which is confirming the result

of this study. Following Vuola et al. (2020) both degradation prevention and
reduction could be established by eliminating environmentally harmful
subsidies, establishing greener standards for public procurements, and
stimulating investment. In accordance with Felice and Petrillo, (2013), the
benefits of Damage prevention and reduction show the social and individual
benefits attained via the creation of a sustainability level or standard. With
regard to religiosity, damage prevention and reduction are in line with
maqāṣid al Syariah which bring substantial benefits for future generations.
This is consistent with the rules of ushul fiqh, which explains that avoiding
harm in environment is more prioritized than the benefit itself; in the words
of God: "...And seek not corruption in the land" (Q.S. 28: 77).
Table 5 Sub-Network Benefit Cluster Priority

Benefit Sub-cluster Academician Practitioner All
Damage prevention and reduction 0.236 0.160 0.255

The enhancement of the ability to
0.126 0.160 0.147
allocate green resources
Development of related industries 0.126 0.093 0.082
Green technology progress 0.126 0.090 0.082

The promotion of industrial
0.066 0.090 0.082
diversification
Higher energy efficiency 0.126 0.158 0.147
The company’s value increasing 0.066 0.090 0.059
Healthcare 0.126 0.160 0.145
Inconsistency 0.001*** 0.046** 0.004***

Kendall’s W 0.332*** 0.343*** 0.300***
X² 23.24 36.01 52.21
P- value 0.000 0.000 0.000
In analyzing opportunity sub-cluster, due to the all respondents group

most weight value, it could be inferred from Table 6 that highest priority lies
on developing alternative environmentally friendly resources. Furthermore,
opportunity sub-cluster is also considered as consistent due to the 5 percent
level significancies in inconsistency. Alternative environmentally friendly
offers us reusable products that have lesser impact towards environmental
degradation (Afrin, Huda and Abbasi, 2021). This is also understandable that
an environmentally based program has become a global priority program to
find sustainable resources for future generation. The G20 reaffirmed its
commitment to the Paris Agreement and the SDGs by releasing the Climate
and Energy Action Plan for Growth and placing sustainable renewables at the
forefront of revitalizing the global economy. The action plan calls for close
collaboration among G20 members to address several critical issues,
including environmental protection and energy access (Kamil et al., 2019). In
addition, International Financial Institutions (IFIs) and Inter-Governmental

Organizations (IGOs) have been involved in developing principles and
implementing environmental and awareness programs. Developing
environmentally friendly businesses could be in the form of activities that
cover atmospheric protection, defense against water pollution, land
degradation, etc (Islam et al., 2014). Thus, this finding is in line with the
government's commitment to achieving zero emissions by 2060.
Table 6 Sub-Network Opportunity Cluster Priority

Opportunity Sub-Cluster Academician Practitioner All
Job creation 0.076 0.130 0.086

Decreasing dependency on
0.147 0.130 0.158
importation of fuel
Development of environmental
0.256 0.130 0.155
economic and social culture
Improvement of the production
0.147 0.078 0.086
process
New sustainable regional planning 0.147 0.110 0.132
Customer satisfaction 0.076 0.053 0.065

The promotion of green technology
0.076 0.130 0.157
innovation
Developing alternative
0.076 0.240 0.160
environmentally friendly resources
Inconsistency 0.002*** 0.004*** 0.037**
Kendall’s W 0.231** 0.197*** 0.165***
X² 16.16 20.70 28.94
P- value 0.024 0.004 0.000

Table 7 shows the sub-network cost cluster priority. Given by the

results of all respondents group below, most concerning sub-clusters within
green transformation cost are investment and HR capacity development cost.
In this particular case, the chosen sub-clusters are two due to the similar
weight value on respective sub-clusters, which is 0.226. Following the same
spirits, all of the respones are consistent due to the inconsistency value is
significant at 1 percent level. This is in line with the view from Krishnan et al.
(2022) that investment cost is expected to reaches 3 trillion USD to 4.5 trillion
USD of annual spending estimated, which equivalent to around 7.5 percent
of GDP worlwide from 2021 to 2050. The same goes with human resource,
Jiakun Liu et al. (2022) reported that human resource development
contributes to the triumph of green economy transformation through
sustainable consumption and production behavior. Furthermore, adequate
human resources is needed to ensure the deeper understanding of its
implementation and raise awareness and commitment of further green
transformation intitative (Liu and Yin, 2019; Felice and Petrillo, 2013).

Table 7. Sub-Network Cost Cluster Priority
Cost Sub-Cluster Academician Practitioner All
Operation cost 0.113 0.177 0.129
Investment cost 0.211 0.177 0.226
HR capacity development cost 0.212 0.177 0.226
Maintenance cost 0.113 0.101 0.073
Ecological damage 0.113 0.101 0.073
Increase in infrastructure costs 0.062 0.101 0.073
Healthcare survey costs 0.063 0.064 0.073
Environmental cost 0.114 0.101 0.129
Inconsistency 0.043** 0.003*** 0.010***
Kendall’s W 0.104 0.188*** 0.127***
X² 7.300 19.71 22.26
P- value 0.398 0.006 0.002

Finally, within second layer analysis, high transition cost become the
most priority to be concerned in green transformation (See Table 8.). Again,
risk sub-cluster is also considered as consistent due to the 1 percent level
significancies in inconsistency. Following Reboredo and Otero (2021), high
transition cost is considered as remarkable risk because it considered as an
essential ingredient in investment decision-making by private/institutional
investors and financal asset pricing. Similarly, Reboredo and Ugolini (2022)
the risk could take the form of force majeur (e.g. natural disaster), legal
framework, and changes in consumer behavior. Following the same spirits,
thus far, most countries are still have dependancy toward fossic fuel, which
may incur greater transition cost (Ekins and Zenghelis, 2021).
Table 8. Sub-Network Risk Cluster Priority

Risk Sub-Cluster Academician Practitioner All
High transition costs 0.239 0.164 0.245
Reduce jobs in specific sectors 0.239 0.093 0.136

Investment in the fossil fuel sectors
0.145 0.093 0.136
will be evaluated
Dependency on foreign technology 0.080 0.093 0.075

The coal and gas export revenue will
0.080 0.164 0.136
drop drastically
Transitioning will require long-term
0.080 0.164 0.136
commitments
Instability of energy resource 0.052 0.084 0.069

Many of the behaviors, technological
networks, and institutions look set to 0.085 0.146 0.069
be devalued

Inconsistency 0.001*** 0.002*** 0.003***
Kendall’s W 0.163 0.172** 0.153***
X² 11.380 18.02 26.74
P- value 0.123 0.012 0.000

Selected Islamic Green Financing: A synthesis of Standard Formula

Following T. Saaty and Vargas (2006), this session interprets the alternative
priority result of ANP-BOCR using standard formula, which denotes by
(𝐵 × 𝐶). B and C are represent benefit and cost, respectively. Highest projected
value indicates the most suitable Islamic Green Financing instrument for
green economy transformation.
0.1500
0.1475
0.1480 0.1466 0.1466
0.1460
0.1440
0.1420 0.1413
0.1404 0.1404
0.1400
0.1380 0.1373
0.1360
0.1340
0.1320
Islamic Retail Islamic Islamic Asset Islamic Islamic Sukuk Islamic Social
Banking Corporate & Management Insurance Weather Finance
Investment Derivatives
Banking
Figure 2. Islamic Green Financing Priority using Standard Formula
Given by the Figure 2 above, it could be inferred that Islamic Asset

Management become the most suitable instrument. In summarizing in-depth
interview responses, Indonesia is enriched by abundant natural resources
that could support green economy transformation through carbon tax and
ecology-based budget. This is can be done through green fiscal fund, a scheme
that allow people to invest in green fund that managed by government. As an
incentive, people who invest in that scheme are exempted from capital gain
tax and attain rebate on income tax. However, the fund must follows Islamic
principle. This view is also in line with Speck and Zoboli's (2017), which
explains that fiscal reform is one of effective solution for green economy
transformation.
Selected Islamic Green Financing: A Synthesis of Short and Long term

To identify the most appropriate Islamic green financing, this study adopts
the approach of T. Saaty and Vargas (2006). The results will be served in two
meanings, namely short-term and long-term, which visualized in Figure 3 and

Figure 4, respectively. The benefits–costs ratio of the green economy
transformation is modified by incorporating opportunity and risk. In addition,
BOCR-based formulas are employed based on T. Saaty (2005) and Emanuel
and Cefalu (2002) to evaluate the best model for the BOCR approach, namely
(1) the additive probabilistic formula, which is typically used to determine
long-term priorities with the formula bB + oO + c(1-C) + r(1-R), and (2) the
multiplicative formula, which is equivalent to marginal cost or benefit analysis
and is typically used to determine short-term priorities with the BO/CR.
0.1800 0.1644 0.1640 0.1640

0.1600
0.1400 0.1310 0.1312 0.1310
0.1143
0.1200
0.1000
0.0800
0.0600
0.0400
0.0200
0.0000
Banking
Figure 3. ANP Results: Short-term Alternative

Based on Figure 3, it reveals that alternative Islamic asset management
is the most popular solution chosen by the respondents for short-term
priorities. Following the same spirits, green fiscal fund, which is one of Islamic
asset management product. This is suitable for short-term solution because
people not face a hardship in investment analysis since the manager will take
over its analysis.
0.1800
0.1742 0.1752 0.1742
0.1750
0.1700
0.1650
0.1603 0.1593 0.1593
0.1600 0.1569
0.1550
0.1500
0.1450
Banking
Figure 4. ANP Results: Long-term Alternative
Looking at Figure 4, Islamic corporate and investment banking is by far

the most relevant Islamic green finance option for the long-term transition to
a green economy in Indonesia. This is due to the fact that banking is a
financial institution that plays a major role in financing large-scale clean fuel

and renewable energy initiatives, in line with (Noh, 2019). Moreover, because
the corporate ecosystem and investors have a broad reach, the opportunity to
fund green projects through this scheme is considerably more promising and
plays a significant role in mobilising the private capital required for the energy
transition (Geddes and Schmidt, 2020). This outcome is consistent with
Asiyanbi's (2018) assertion that carbon commodity finance will result in
emissions reductions that would not have occurred otherwise.
Conclusion and recommendation

Conclusion
On the basis of the ANP-Delphi approach, with BOCR model, this study
demonstrates that the most important criterion in green economy
transformation through Islam green finance is benefit, particularly in
connection with damage prevention and reduction. This is followed by
opportunity (mostly associated with developing alternative environmentally
friendly resources), cost (the expense of developing human resource
capability, and investment cost), and risk (high transition costs). In the study,
the value of benefit and opportunity is shown to exceed that of cost and risk.
This demonstrates that a green economy transition can be implemented in
Indonesia.
Turning to Islamic green financing alternatives, according to the
standard formula, it is revealed that the best priority of Islamic Green
Financing is Islamic asset management. The same goes with short-term
strategy, which turns out Islamic asset management attained the highest
priority. However, within long-term strategy, Islamic corporate and
investment banking become the most feasible alternative.
Recommendation
On the basis of the research findings, it is suggested that Islamic asset
management is the most relevant short-term Islamic green financing solution
for the transition to a green economy in Indonesia. Government should
encourage people to invest within the fund that managed by government. One
example is initiative by Netherland in 1995. People are exempted from paying
capital gains tax and receive a discount on income tax. As a result, investors
can accept a lower interest rate on their investment and banks can offer green
loans at a lower cost
The same goes with Islamic corporate and investment banking
alternative, which is the most feasible alterantive for long-term strategy, the
government plays an important role in green tranformation. Through legal
path, government could encourage Islamic bank to shift their percentage of
financing to green economy, be it with incentive or merely enactment. One
idea is the government, cooperating with central bank, give the respective
Islamic bank an incentive such as reserve requirement reduction or lower LTV
toward green project.
All in all, stakeholders, particularly government, plays a significant role
in green transformation through Islamic financing. Credibility is a must for a
successful green transformation. “Actor vested with interest” within
government should be gradually eradicated, so political issue, be it rent-
seeking or conflict of interest, wont be happened in future occasion.

Furthermore, government spending and work plan should also shifted toward
green tranformation so the support toward that concern will be fulfilled.
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Towards Green Economy Transformation

Through Islamic Green Financing

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Electronic copy available at: https://ssrn.com/abstract=4321320

Green Economy Transformation Risks and Green Islamic Financing

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Figure 1. Summary of the ANP BOCR Model

The following formula was used to determine short-term and long-term

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Table 1. List of Respondents

Using a questionnaire (attached in Appendix 1) adopting a likert scale

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Results and analysis

Table 2. Delphi Results on Rater Agreement

Benefit 0.491*** 0.549*** 0.512***

Opportunity 0.216*** 0.134** 0.170***

Cost 0.198* 0.394*** 0.268***

Risk 0.204** 0.325*** 0.263***

Turning to ANP result in Table 3, despite of cost and risk insignificancy

Table 3. ANP Results on Rater Agreement

Benefit 0.332*** 0.343*** 0.300***

Opportunity 0.231** 0.197*** 0.165***

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Risk 0.163 0.172** 0.153***

First Layer - BOCR Cluster Priority

Table 4. ANP BOCR First Layer Model Priority

Benefit 0.455 0.286 0.424

Second Layer - BOCR Sub-Network Cluster Priority

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Table 5 Sub-Network Benefit Cluster Priority

Damage prevention and reduction 0.236 0.160 0.255

Green technology progress 0.126 0.090 0.082

The company’s value increasing 0.066 0.090 0.059

Healthcare 0.126 0.160 0.145

Inconsistency 0.001*** 0.046** 0.004***

In analyzing opportunity sub-cluster, due to the all respondents group

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Table 6 Sub-Network Opportunity Cluster Priority

Job creation 0.076 0.130 0.086

New sustainable regional planning 0.147 0.110 0.132

Customer satisfaction 0.076 0.053 0.065

Inconsistency 0.002*** 0.004*** 0.037**

Kendall’s W 0.231** 0.197*** 0.165***

X² 16.16 20.70 28.94

P- value 0.024 0.004 0.000

Table 7 shows the sub-network cost cluster priority. Given by the

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Operation cost 0.113 0.177 0.129

Investment cost 0.211 0.177 0.226

HR capacity development cost 0.212 0.177 0.226

Maintenance cost 0.113 0.101 0.073

Ecological damage 0.113 0.101 0.073

Increase in infrastructure costs 0.062 0.101 0.073

Healthcare survey costs 0.063 0.064 0.073

Environmental cost 0.114 0.101 0.129

Inconsistency 0.043** 0.003*** 0.010***

Kendall’s W 0.104 0.188*** 0.127***

X² 7.300 19.71 22.26

P- value 0.398 0.006 0.002

Table 8. Sub-Network Risk Cluster Priority

High transition costs 0.239 0.164 0.245

Benefit 0.491* 0.549* 0.512***

Opportunity 0.216* 0.134 0.170***

Cost 0.198* 0.394* 0.268*

Risk 0.204 0.325* 0.263***

Benefit 0.332* 0.343* 0.300***

Opportunity 0.231 0.197* 0.165***

Risk 0.163 0.172 0.153*

Inconsistency 0.001* 0.046 0.004***

Inconsistency 0.002* 0.004* 0.037**

Kendall’s W 0.231 0.197* 0.165***

Inconsistency 0.043 0.003* 0.010***

Kendall’s W 0.104 0.188* 0.127*

Kendall’s W 0.163 0.172 0.153*