ISLAMIC FINANCE AND THE PRINCIPLES FOR RESPONSIBLE INVESTMENT
“Only 1% of Principles for Responsible Investment worldwide signatories are based within Organisation of Islamic Cooperation member states.”
UK – 24th March 2021, The Islamic Finance Council UK (UKIFC), in partnership with Malaysia based International Shari’ah Research Academy for Islamic Finance (ISRA), has launched the second report in its 4-part thought leadership series that aims to assist and encourage active engagement in support of the UN Sustainable Development Goals (SDGs) by the global Islamic finance sector.
The report provides a quantitative and qualitative analysis of responsible investing in the Islamic finance sector, assessing the level of engagement with the Principles for Responsible Investment (PRI) amongst financial institutions in Organisation of Islamic Cooperation (OIC) member states and analysing the approaches and terminology used by 12 Islamic finance signatories. It also features detailed case studies on BIMB Investment Management Berhad, DDCAP Group, GIB UK and Sedco Capital who have all shown notable leadership in responsible investing.
The PRI, which launched in 2006, is the world’s leading framework for responsible investment and is underpinned by six voluntary and aspirational investment Principles that support signatories to incorporate Environment, Social and Governance (ESG) issues into their investment practices. This enable signatories to align with the broader sustainable objectives of society – as currently best defined by PRI as the SDGs. The report uses the PRI as a proxy to demonstrate engagement with the broader fast growing global responsible investment and ethical finance market and explores if the Islamic finance sector is successfully engaging in such or missing out on a multi-trillion dollar commercial opportunity.
With its underlying Shari’ah principles, Islamic finance is naturally aligned to, not only support but, lead the financial services sector’s efforts towards achieving the SDGs. However, whilst a small number of organisations are making significant progress the report has highlighted the pressing need to raise awareness, in OIC member states and beyond, of responsible investing and the ‘triple bottom line’ benefits to be achieved by integrating Shariah compliance with ESG strategies.
TAKEAWAYS FROM THE REPORT INCLUDE:
- Of the 83 countries containing PRI signatories only 12 are OIC member states.
- These 12 OIC member states have 37 PRI signatories, comprising 24 investment managers, 4 asset owners and 9 service providers.
- Despite the OIC member states having a collective population of over 1.82 billion (24% of the total world population) only 37 (1%) of the 3,575 PRI worldwide signatories are based within them.
- Between 2008 and 2016 there were 9 PRI signatories based in OIC member states but since 2017 a further 28 new signatories have joined the PRI.
- Responsible investing presents an opportunity for Islamic asset managers to tap into emerging agnostic global liquidity pools seeking SDG-aligned products and increase their assets under responsible management.
- Aligning Shariah compliant and ESG investment strategies supports the tayyib concept enabling Islamic financial institutions to deliver financial returns and societal impact within the established shariah compliance framework. The tayyib thematic within Islamic finance presents one of the biggest growth opportunities for the industry.
With OIC countries amongst those in greatest need of SDG investment more work must be done to raise the profile and increase adoption of the PRI amongst the 57 OIC member states as well as the global Islamic finance investment community. By working together Islamic finance institutions have the opportunity to develop and position Shariah-compliant ESG engagement as a beacon of responsible investment.
DOWNLOAD THE REPORT – https://www.ukifc.com/sdg/
“Islamic finance is naturally aligned with the UN Sustainable Development Goals (SDGs). But the low level of engagement with the Principles for Responsible Investment (PRI) in the OIC region means there is a huge opportunity. Through our Global Islamic Finance and SDGs Taskforce we have the platform to work with PRI and the Islamic finance sector to increase awareness, promote understanding and encourage adoption of the Principles.”
Omar Shaikh, Board Member, UKIFC
“We welcome this important report which aims to build on the nascent development of ESG investment and the SDGs amongst the Islamic finance community. The alignment of people, profit and planet and the drive to achieve a sustainable global financial system is a universal one; we invite asset owners, investment managers and service providers working in Islamic finance to join us at PRI to further this mission.”
Fiona Reynolds, CEO, Principles for Responsible Investment