Abstract: Islamic banking is ready to accept legal framework on the principle of transboundary liability which based on the concept of sustainable development. The concept of sustainable development has been defined by the world commission on environment and development as development that meets the needs of the present generation without compromising the ability of the future generations to meet their own needs. The before said concept covers two essential scopes, i.e., environment and governance aspects. As the result, one of the legal framework approach under the concept of sustainable development is the principle of transboundary liability. The principle of transboundary liability plays an important role in the area of environmental law and governance. The used of the principle of transboundary liability in the area of environmental law and governance is largely in respond to the inevitability of every human being around the globe to protect environment from being polluted in their surroundings. As for the Islamic banking is concerned, the bank may created an essential mechanism to achieve sustainable development. Therefore, this study examines the used of the principle of transboundary liability in Islamic banking with relation to the environmental law and governance by identifying actions and cases which deal with environmental protection. This study is also identifying the relation between the Islamic banking which applied the principle of transboundary liability and Rio Declaration as a means to protect mother nature.