Islamic finance, based on ethical investing principles and socio-economic justice, has the potential to tackle worldwide financial difficulties and advance sustainable development. This article examines Islamic finance's historical background, present condition, and prospects, focusing on its compatibility with Environmental, Social, and Governance (ESG) standards and sustainable development goals (SDGs). Throughout its history, Islamic finance has developed from its initial focus on fairness and societal accountability to become a complex business that includes Sukuk, Islamic banking, and Takaful. The industry encounters obstacles such as discrepancies in regulations and fluctuations in the economy while also having prospects for expansion and incorporation into the global financial system. Global uncertainties, such as technological upheavals and socio-political dynamics, require Islamic finance to possess resilience and adaptation. The future of Islamic finance hinges on its ability to incorporate ESG (Environmental, Social, and Governance) and sustainability factors. This can be achieved by utilizing novel financial instruments such as Green Sukuk and Social Impact Sukuk, which aim to raise funds for projects with positive environmental and social impacts. Strategic measures such as standardization, increasing awareness, improving regulations, and creating capacity are essential for promoting the integration of ecological, social, and governance (ESG) factors. The capacity of Islamic finance to appeal to socially aware investors and promote sustainable economic growth highlights its crucial role in establishing a fairer and more robust global financial system. This article offers valuable insights and suggestions on utilizing Islamic finance's ethical principles to promote sustainable development and enhance economic resilience.