Behavioral Finance in Green Investment: Strengthening Islamic Ethical Norms for Sustainable Financial Decisions

Abstract

Abstract: The urgent need for sustainable economic practices has increased interest in green investment. However, understanding what drives individual decisions to invest in environmentally friendly instruments remains limited—especially in contexts influenced by religious values such as Islamic ethics. This study aims to investigate how behavioral finance factors—specifically risk perception, social norms, and environmental attitudes—alongside Islamic ethical principles, influence green investment decisions. Using a quantitative approach and structural equation modeling (SEM), data were collected from individual investors who align their financial choices with both environmental concern and Islamic values. The findings reveal that risk perception negatively affects green investment decisions, while social norms and environmental attitudes have a significant positive impact. Additionally, Islamic ethics reinforce these behavioral patterns by promoting principles such as avoiding harm (haram) and pursuing collective benefit (maslahah). The study concludes that psychological and ethical considerations jointly shape investor behavior in sustainable finance. These results not only contribute to the theoretical development of behavioral finance and Islamic economics but also provide practical implications for policymakers and financial institutions aiming to encourage ethical and sustainable investment behavior. This research highlights the need for integrated strategies that blend ethical values with behavioral insights to support green finance