Journal of Integrated Socio-Economic Systems and Islamic Finance

Vol. 2 (2026)
Articles

Sustainability as a Risk-Mitigation Tool: Comparative Evidence from Islamic and Conventional Banking Systems

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  • Saba Iqbal,
  • Maham Sattar
Saba Iqbal
Department of Management Sciences, National University of Modern Languages Lahore Campus, Lahore, Pakistan
Maham Sattar
Universiti utara Malaysia

Published 2026-04-24

Keywords

  • Islamic and conventional banks,
  • Sustainable development goals,
  • Risk,
  • United Nations

How to Cite

Sustainability as a Risk-Mitigation Tool: Comparative Evidence from Islamic and Conventional Banking Systems . (2026). Journal of Integrated Socio-Economic Systems and Islamic Finance, 2, 1-11. https://doi.org/10.65638/2978-8196.2026.02.01

Abstract

The implementation of Sustainable Development Goals (SDGs) proposed by the United Nations has encouraged banks to adopt sustainability practices. Although previous research mainly focuses on the performance implications of SDG adoption, there is little data on the impact of sustainability on the risk of banks, especially in comparison with Islamic and conventional banks. This research fills this gap by making a comparative analysis of the effect of SDG adoption on the risk profile of Islamic and conventional banks in the Asia-Pacific region. SDGs are measured by construction an ESE Index from the indicators proposed by the United Nations. The two-step system GMM (Generalized method of moments) method is used to analyze panel data of Islamic and conventional banks in the Asia-Pacific region to compare the relationship between SDGs and the risk of Islamic and Conventional banks. The results show that SDGs are negatively related to the risk of conventional banks as compared to the Islamic banks, as the conventional counterparts are more mature and have good risk management practices. In contrast, Islamic banks already operate under Shariah principles that emphasize ethical investment, risk sharing, and socially responsible financing, which are already aligned with sustainability goals. The present work is relevant to the sustainable banking literature by providing comparative evidence of the effect of SDG adoption on risk in banking models and by employing it in a dual banking framework. The results give important implications for regulators, policymakers, and banking institutions by highlighting the role of SDGs adoption on the risk mitigation of Islamic and Conventional banks so that the financial stability is enhanced within the banking operations.

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