Integrating ESG into Zakat Management: Efforts to Advance LAZ Governance
In the context of managing Zakat, Infak, Sedekah, and Other Religious Social Funds (DSKL), Zakat Management Institutions (LAZ) must study and adopt current developments to improve governance. Simply put, LAZs are public entities that collect and distribute community funds.
Given their role in public welfare, LAZ management must prioritise planned, impactful, and sustainable principles without neglecting social, environmental, and good governance aspects. These principles are globally framed through Environmental, Social, and Governance (ESG) standards.
ESG instruments are predominantly adopted by corporations. Dewi Hanggraeni (2023) notes that ESG practices help maintain corporate reputation among consumers and the public.
ESG enables companies to identify and map risks related to environmental and social issues. It also serves as a tool to evaluate corporate relationships with the environment, employees, and communities.
Shared Characteristics: LAZ and Banking
Although LAZs are not corporations, adopting ESG in their management is not taboo. Competing in doing good (fabaqul khairat) requires innovation and adaptation. Upon closer inspection, LAZ operations share similarities with financial institutions like banks—similar yet distinct.
Public fund collection. Banks gather funds via savings, deposits, and credit products, while LAZs collect through ZIS-DSKL funds. Network orientation. Banks target customer numbers, whereas LAZs aim for donor numbers (muzaki and munfik).
Reputation management. To maintain trust, banks offer consumer services; LAZs do the same. To meet collection targets, donor growth, and retention, complaint handling, inquiries, and relationship management must not be overlooked.
Theological Framework
Theologically, Allah SWT has designated humans—not angels—as stewards of the Earth. The purpose of this mandate is preservation and prosperity, not destruction (Quran 2:30). Meanwhile, humanity is urged to actively pursue goodness (Quran 3:104).
As a religion emphasising environmental stewardship, the Quran warns of Earth’s degradation caused by human actions (Quran 30:41). Allah prohibits humans from damaging the Earth, created in a pristine state (Quran 7:56). This is reinforced by prohibitions against harming nature, plants, and animals, as Allah dislikes destruction (Quran 2:205).
Socially, Islam mandates zakat with beneficiaries (asnaf) detailed in the Quran (9:60), including: The poor (fakir)—those without sufficient wealth or income to meet basic needs.
The destitute (miskin)—those with income insufficient for basic needs. Riqab—victims of oppressive social systems, social conflict, and inhuman economic or sexual exploitation.
The core essence of zakat is ensuring wealth and prosperity do not remain confined to the wealthy few. This mandate to foster prosperity and goodness requires well-organised thinking and operational frameworks.