Aligning Islamic ethical finance and ESG in China’s green investment strategy in the Middle East

Purpose This paper aims to explore why Islamic ethical finance and environmental, social and governance (ESG) alignment can improve the success of the green investment programs of China in the Middle East. It looks at how financing mechanisms, sustainability practices and the regulatory support interplay to determine investment performance. Design/methodology/approach This research constructs a conceptual framework based on the resource-based view, stakeholder theory, institutional theory and the theory of planned behaviour. The model undergoes empirical testing using the partial least squares structural equation modelling with 470 professionals who participated in Chinese-led ventures in green investments in the Middle East to evaluate direct, mediating and moderating relationships among the constructs. Findings New financing instruments, strong ESG policies and incorporation of Islamic ethical finance have positive effects on green investment performance. Project-level practices of sustainability play a major role in the mediation of these effects. In addition, regulatory assistance in host countries does not only promote investment performance but also improve the relationship between sustainability activity and performance, highlighting the role of institutional alignment in relation to sustainable finance across borders. Research limitations/implications This research is context-specific to Chinese green investments in the Middle East and relies on perceptual data obtained among respondents. Further studies can increase the geographical area or apply longitudinal data to evaluate changing investment policies. Practical implications The results offer policy implications to policymakers, investors and practitioners who are interested in making international green finance regionally ethically and regulatory sound. A strategic of alignment with Islamic financial principles and host country ESG standards may promote legitimacy, stakeholder acceptance and project sustainability. Originality/value This study provides an integrated model taking into consideration Islamic finance, ESG alignment, sustainability practices and regulatory context. It provides new information on how sustainable investment performance in the emerging Islamic market could be enhanced by culturally and ethically consistent strategies of finance.