Firms' Dynamics of ESG and Islamic Finance: Liquidity, Solvency and Macroeconomic Externalities: A Case Study of OIC Countries

The study aims to investigate (demonstrate) whether firms can be geared to generate positive macro-economic externalities through the harmonization of ESG and Islamic finance which can help mitigate ESG risks, and therefore minimize the additional cost of adopting ESG. Exploratory research using emergent and case study research methods. While catering to the poor at present (basic needs), poor people (eligible recipients of Zakat in accordance to Shari’ah) can be actively engaged, employed, and empowered (capabilities building- human development), while the welfare of the future generation is preserved (ESG) ethically (Islamic Finance). Also, firms can be geared to exert positive macro-economic externalities to pose sustainable self-funding solutions to poverty and inequality. And in turn, the positive macro-economic externalities can be used to minimize ESG risks faced by economic agents. The Sustainable Ethical and Self-funding (SES) framework as deduced by this study aligns with the Sustainable Development Goals and directly and indirectly contributes to their achievement. In the same vein, the SES framework can be the ultimate guide and blueprint for sustainability issues of OIC member countries. This study demonstrates that sustainable debt instruments can be used to solve any prospective financing issues that may arise with the SES framework. This study supplements part 1 of the research. i.e., Essay 1. There are limited or no studies that investigate the subject matter from the standpoint of firms' dynamics, especially in OIC countries. Also, there are limited or no studies that investigate the mechanisms of how macroeconomic externalities can be geared to reinforce firms' dynamics of ESG and Islamic Finance, and vice versa. This study also constructs a practical and sustainable framework for combating poverty and inequality, in relation to the subject matter, which is under-discussed in the literature.