An Ethical Convergence: Islamic Finance and ESG Principles
In recent years, Environmental, Social, and Governance (ESG) considerations have become increasingly important in the financial industry. The term was first used by the UN Global Compact in 2005. ESG despite having financial relevance, originally was not a part of financial analysis.
The term “ESG” refers to a firm’s overall impact on the environment, society, and the strength and openness of its corporate governance, including matters such as executive compensation, company leadership, audits, internal controls, and shareholder rights. The environmental considerations center on how the company lessens its environmental impact, for instance, resource depletion, greenhouse gas emission, and deforestation. The social component is concerned with the way a company affects both workplace culture and the larger society, for instance, working conditions, including child labour and slavery; and health and safety. The term “governance” describes the procedures for making decisions, reporting, and managing the day-to-day operations of an organisation including issues on donations and political lobbying, corruption, and bribery.
Similarly, Islamic finance, which is guided by the principles of Islamic law (Shariah), continues to grow rapidly. Islamic finance refers to financial services – such as banking or investment – where money is raised and used in line with Shari’ah. It prohibits interests (riba), engagement with gambling (maysir), uncertainty (gharar), and prohibited industries like alcohol and pornography. It offers perspectives that aligns closely with ESG objectives. This blog post explores the reasons why Islamic finance is inherently compatible with ESG principles and how Islamic banks are taking steps to align with ESG principles. One area of convergence between ESG and Islamic Finance is that both encourage economic expansion and financial stability, as well as the protection of the environment and the eradication of poverty. For instance, countries like Saudi Arabia and Malaysia have begun to issue green and sustainable sukuk. These investments in environmental assets and renewable energy are compliant with Shari’ah.
Just like ESG, Islamic Finance requires screening out certain industries, the beneficiaries’/clients’ values must be reflected in the portfolios, together with the objective of creating a just and sustainable society and avoiding environmental or human harm. The screenings could be absolute, for instance, it could prohibit weapons, pornography, and cluster ammunition. Where the screening is relative, the rules can entail for instance barring businesses whose tobacco sales account for at least 10% of their total revenue. Companies or issuers that perform poorly in terms of ESG factors or that transgress international soft laws like the UN Guiding Principles on Business and Human Rights may also be excluded. Investments in conventional financial services, cigarettes, alcohol, pork, pornography, guns, gambling, human smuggling, and other goods and activities that are regarded as illegal are prohibited under Islamic finance, which is based on Shari’ah regulations.
Islamic finance places emphasis on investments in real assets and tangible projects that have a positive impact on society. This emphasis is consistent with the ESG philosophy of investing in businesses and initiatives that meet social needs, produce sustainable value, and improve the general well-being of communities.
Although similarities exist between ESG and Islamic Finance, there are areas of divergence. Islamic Finance prohibits security lending and shorting. ESG does not prohibit it but some investors running ESG investing strategies also will not partake in security lending and shorting, while others will apply rules that allow them to vote on shareholder resolutions.
Islamic banks are taking steps like their conventional counterparts to align with ESG. Some of them are signatories to the Principles on Responsible Banking like Al Baraka Banking Group (Bahrain), Gatehouse Bank (UK) and Jaiz Bank (Nigeria) which are fully Shari’ah compliant. A new three-year ESG strategy to incorporate ESG risk concerns within the banking framework was recently highlighted in the Abu Dhabi Islamic Bank’s second annual ESG report.
Overall, there is a chance to increase the influence of ethical and responsible investing due to the convergence of Islamic finance and ESG. It enables Islamic financial institutions and investors to include ESG factors and support sustainable development while upholding their core values and tenets. This convergence encourages the development of ethical finance, broadens the use of sustainable investment strategies, and helps create a more equitable and sustainable international financial system.
Register here to participate in the conversation on ESG at the Ethical Finance Global 2023 summit organised by our partner GEFI.
POSTED IN: ACTIVITIES, ARTICLES, INSIGHTS
Faith In Finance: Collaborating Faiths for Economic Integrity
Faith groups have a long history of incorporating values into financial decision-making. For thousands of years, the world’s major faiths have included instructions on how to carry out business in an ethical manner, and the modern ethical finance movement has its roots in religious investment funds seeking to exclude weapons manufacturers from their portfolios in the 1970s. The Pax World Fund, launched in 1971 by Methodists in reaction to the Vietnam War, is still active today and known as Impax Funds.
In 2018, the Edinburgh Finance Declaration was launched by UKIFC in collaboration with GEFI and the Church of Scotland after a three-year dialogue. The Edinburgh Finance Declaration is a ray of hope in a world where economic systems frequently put financial gain ahead of morality. By working together, these institutions strive to promote financial integrity, responsible investment, and economic justice.
In this article, we look at the six shared values in operation in both Islam and Christianity which the Declaration identifies as providing an ethical framework. They are – Stewardship, Love of the Neighbour, Human Flourishing, Sustainability & Purposefulness, Justice & Equity and the Common Good.
Stewardship
Both religions place an emphasis on stewardship which implies that the money we possess ultimately belongs to God and is to be spent in accordance with righteous moral standards, with investments made with the welfare of humanity in mind. In the Holy Quran (Q2:30), human beings have been appointed as vicegerents on earth and Genesis 1.26- 27 has a similar provision.
Love of the Neighbour
It suggests a sense of social duty and a dedication to advancing others’ well-being, rather than just expressing love or other forms of connection. It was reported by a companion of Prophet Muhammad (p.b.u.h) Abu Hurayrah that the Prophet (p.b.u.h) said: “Jibra’il kept enjoining good treatment of neighbours until I thought he would make neighbours heirs.” Loving one’s neighbour is also mentioned in Matthew 22:34-40. This concept helps to develop empathy, kindness, and care for other people.
Human Flourishing
It refers to a person’s condition of maximum well-being and development, during which time they are experiencing personal growth, fulfilment, and potential realisation not just for themselves but for the overall good. Additionally, it entails the capacity to completely embody the virtues of charity, compassion, and justice within a society through not only the advancement of commerce but also one that is mindful of the needs of all.
Sustainability and Purposefulness
The idea of stewardship means that human beings must take responsibility to manage the available resources and use them efficiently. Sustainability and environmental stewardship are frequently values that cross religious boundaries. By working together, religious groups can influence the financial sector to support initiatives that put focus on renewable energy, environmental protection, and ethical business practices.
Justice and Equity
Justice, equality, and compassion are values that are emphasized in both religious traditions. There can be cooperation in the financial sector to combat systematic injustices, poverty, and marginalisation. As a result of his concern for the extreme poverty of his parishioners, Rev. Henry Duncan founded the first savings bank – Ruthwell Parish Savings Bank in 1810 with the intention of promoting saving among the working class and protecting them from the degrading effects of poor relief. Interestingly, Mit Ghamr established the first Islamic bank on his model. Although both banks were short-lived, they were foundations for the recent banking models.
Common Good
This shapes how followers interact with and give back to their communities and the larger world, guiding their personal behaviour and informing both religions’ ethical teachings. This underscores the requirement to pay zakat. It is the third pillar of Islam which mandates that Muslims donate 2.5 per cent of their qualified wealth each year to support Muslims who are in need. Although voluntary, the idea of paying tithes in Christianity can be linked to this.
In conclusion, by working together, these institutions strive to promote financial integrity, responsible investment, and economic justice. The partnership between UK Islamic Finance Council (UKIFC) and the Church of Scotland serves as a model for interfaith cooperation and demonstrates the potential for transformative change within the community.
POSTED IN: ACTIVITIES, ARTICLES, INSIGHTS
Investing in SDG-Aligned Products
In our recently published report, Attitudes of banking customers towards the UN SDGs, an impressive 87% of respondents stated that they would be willing to pay extra for SDG-aligned products. For a product to be SDG aligned, it must be connected to one or more of the existing 169 targets under the 17 SDGs. What exactly does that mean?
An SDG-aligned banking product is similar to a sustainability or green product. It can be a loan, bond, sukuk, or any other sort of financial product. The difference from a traditional product is that these specialty products are designed with a specific goal in mind, usually an environmental or social goal that can be measured. For instance, a green loan that is tied to a particular project may have different repayment amounts for different levels of success, such as cutting emissions from a particular business by 20% or 50%. In this case, the borrower would repay less if they achieved more of an emissions cut.
The findings from Attitudes of Banking Customers Towards the UN SDGs, recently released by GEFI and the UKIFC, found that 80% of Global North respondents and 89% of Global South respondents were willing to pay more for an SDG-aligned financial product. On average, the respondents were willing to pay a premium of up to 4.4%. That’s a significant amount, a clear demonstration that this is becoming more and more important to financial product clients all over the world.
There were variations in feedback that were most evident in age, with the lowest (18-24 year olds) and highest (65+) being willing to pay the lowest premium (3.8% and 2.1%, respectively). This is likely due to differences in awareness. Younger respondents are in the process of learning about financial products and exploring what works best for them, while older respondents may have concerns that impact-oriented investing may not be as effective as traditional investing. In both cases, clear educational tools and resources would be beneficial. Luckily, more and more research is finding that investing from a sustainability-backed approach does well to mitigate risk, tends to be less volatile, and is economically profitable.
When developing these financial products, financial institutions have an opportunity to impact genuine positive change. The OECD’s Framework for SDG Aligned Finance presented this beautifully with two primary objectives:
- Equality: resources should be mobilised to leave no one behind and fill the SDG financing gaps, and
- Sustainability: resources should accelerate progress across the SDGs.
This is pivotal as it emphasizes the need to make socially conscious decisions while addressing the SDGs, to ensure that investments in one area are not detrimental to another. For instance, suddenly shutting down all mining operations may be better for the environment, but it could leave the local population struggling if there is no other industry around. SDG financial products must be carefully designed to maximize positive benefit while mitigating the negative.
With a strong interest in SDG-aligned financial products from consumers and research supporting the economic benefits of such an investment, it is no wonder that impact investing has grown 63% from 2019 to 2021, surpassing $1.2 trillion according to the Global Impact Investing Network (GIIN). Demand is rising for positive investments that are good for people and good for the planet.
The findings from Attitudes of banking customers towards the UN SDGs, a joint effort by GEFI and UKIFC, found consistently strong support for financial products that are SDG aligned. These products give banking clients the opportunity to directly support causes they feel strongly about, to invest in their communities, and to see positive returns for socially and environmentally aligned investments. It is empowering for clients, creates opportunities for financial institutions to invest in risk-mitigated, strategic, long-term projects, and fosters a sense of inclusion.
To support this important work, GEFI has designed the SDG Product Platform. Financial products are carefully assessed to ensure that they meet the goals they set for themselves, and GEFI works closely with the asset manager to maintain SDG alignment and economic benefit. Learn more about GEFI’s SDG Product Platform here:
Banking Customer Focus on UN SDGs
In the recently released joint report by the UKIFC and GEFI, banking customers discussed their perceptions regarding the UN and UN SDGs, and revealed where their values lie.
The report, Attitudes of banking customers towards the UN SDGs, took a particularly interesting approach as so often the focus is on how the UN SDGs can be integrated into a financial portfolio. Research is often framed from the perspective of the asset manager, government, or special interest nonprofit. Speaking directly to banking customers in different countries reveals the concerns of everyday people, not just industry experts.
Of the top UN SDGs that banking customers focused on, both the Global North and Global South prioritized Quality Education (Goal 4) (30% and 29%, respectively). There is an awareness of how vital it is, not only for children but for adults, to continue learning and growing as the challenges we face as a planet evolve. This goal spans generations and genders, as it highlights the importance of lifelong and gender-inclusive learning.
The top priorities for both Global North and Global South were focused around social equity and quality of life. Quality Education sets the foundation for the other goals of Zero Hunger (Goal 2), Gender Equality (Goal 5), Clean Water & Sanitation (Goal 6), and Affordable & Clean Energy (Goal 7).
Interestingly, the UN SDGs with the least amount of awareness for both the Global North and Global South are Life Below Water (Goal 14) and Life on Land (Goal 15), likely because they are broad, far-reaching goals. Both of these goals significantly impact those living in vulnerable areas such as islands or in areas sensitive to climate shifts, but they can come across as abstract concepts for people who don’t experience direct impacts of climate change in their daily lives.
The other SDGs that received the lowest engagement are Responsible Consumption & Production (Goal 12) and Partnerships for the Goals (Goal 17). Given that this survey targeted banking customers, it is likely that those particular goals seem best addressed at an institutional level. In support of this, it is worth noting that survey participants were strongly in favour of their banking institutions offering sustainability products.
The Global North and Global South agreed that Reducing Poverty and Hunger was the most important UN SDG to consumers. Of the global population, 8.9% are undernourished and roughly 8% are living in extreme poverty, meaning that these issues impact over 650 million people. With increasing environmental risks from climate change, these percentages are likely to increase as a direct result of droughts, shifting weather patterns, and planetary stress.
Recent publications from ESG Today to Reuters have stressed the importance of ‘zooming out’ to see the bigger picture beyond environmental metrics. It is important to remember that while we focus on particular issues, all of the UN SDGs are connected in one way or another. In cleaning up the oceans (Goal 6), we can create quality employment (Goals 7, 8, and 9), healthier communities (Goals 3, 11, and 12), and encourage global collaborations to unite and strengthen our sense of global community (Goals 16 and 17).
'The Future of Green and Sustainable Finance'- UKIFC at Dubai Expo 2020
The UKIFC are thrilled to be delivering a Global Leaders event in partnership with the Global Ethical Finance Initiative, as part of the Scottish Government’s Expo 2020 Dubai Race to Net Zero Day. Taking place in Dubai International Financial Centre, the event will look at future of green and sustainable finance with a particular focus on financing the UN Sustainable Development Goals (SDGs).
Speakers include:
- HE Dr Reza Baqir, Governor, State Bank of Pakistan
- Christian Gueckel, Chief Risk Officer, Head of Research, Sedco Capital
- Ivan McKee, Minister for Business, Trade, Tourism and Enterprise, Scottish Government
- Mustafa Adil, Head of Islamic Finance, Data & Analytics, London Stock Exchange Group
- Graham Burnside, Senior Advisor, GEFI & Chair, UKIFC
- Syed Samar Hasnain, Executive Director, State Bank of Pakistan
- Omar Shaikh, Managing Director, GEFI
Scotland has a unique and strong heritage in ethical finance through the world’s first mutual savings scheme, the world’s first savings bank and indeed the father of modern economics Adam Smith. Smith’s reconciliation between self-interest and innate goodness through his enquiries into moral philosophy and the causes of the wealth of nations created the chassis by which modern markets and economies functions.
With the meteoric rise of ethical/sustainable finance (over $80trn signed up to PRI) once again modern markets face the challenge of reconciling profit and purpose. This event will unpack and explore key thematic in the financial markets in addressing this global trend which aligns with Expo 2020 Dubai’s focus on sustainability and the UN SDGs.
We will also be officially launching our latest report with State Bank of Pakistan (SBP on implementing the SDGs into national economic framework.
There is still time to register to join us here.
The best Islamic Finance Qualifications in 2022
Islamic finance has been hailed as a means to catalyze economic growth in the UK in 2022. For those of just starting out in the field- or looking to solidify our practice within it- now might be the perfect time to gain a qualification.
Islamic Finance Qualifications are a great way to integrate a Shariah and faith-based perspective to your pre-exisiting financial knowledge. Gaining an Islamic Finance Qualification represents a fantastic opportunity to learn how to implement Shariah principles in a business and insurance capacity, and to increase your subject-awareness more broadly.
Knowing what qualification to take can be a challenge, whatever stage of your career you’re currently at. To help you take your next step on your Islamic Finance journey, we have put together a directory of UK-based and remote qualifications to suit your learning needs.
UK-Based:
- Islamic Finance Msc, University of Birmingham:
Islamic Finance – MSc – 2022/23 Entry | Birmingham City University (bcu.ac.uk) - Islamic Finance Msc, University of Dundee
Islamic Finance MSc | University of Dundee - Durham: Durham Centre for Islamic Economics and Finance – Durham University
- The Islamic Foundation, Markfield Institute
- Islamic Finance & Banking Islamic Banking and Finance | Bangor University
- The Islamic Foundation, Markfield Institute
Remote Learning / Outside of the UK:
- CISI: Islamic Finance Qualification (cisi.org)
- ACCA: The Islamic Finance Qualification (IFQ) | ACCA Global
- The Global University of Islamic Finance: INCEIF | » Professional Certificate in Islamic Finance
- The Accounting and Auditing Organization for Islamic Financial Institutions: AAOIFI
The UKIFC has specialist capability in advising government agencies, regulatory bodies and financial institutions on creating enabling frameworks for Islamic finance, as well as empowering Shariah scholars and finance professionals. To find out how we can help you or your organisation, contact info@ukifc.com
UKIFC COP26 sessions available on Efx.Global
The UKIFC was delighted to support the Global Ethical Finance Initiative through their ‘Faith in the SDGs’ programme at COP26 across the 2 weeks of the summit, with a series of public and private meetings. A number of these sessions are now available to watch back on EFX.Global, including the whole of the Faith in the SDGs mini-summit which took place at the University of Glasgow Adam Smith Business School.
Take me to the Faith in the SDGs mini summit on Efx.Global
New: COP26 'Faith in the SDGs' photobook released
The UKIFC were honoured to be parth of the programme of activities around Faith in the SDGs at COP26 which took place across the 2 weeks of the summit, with a series of public and private meetings. The activities were held in partnership with The Global Ethical Finance Initiative, FaithInvest, Wahed Invest, Gatehouse Bank and the Church of Scotland.
The private meetings took place at Ross Priory, on the beautiful banks of Loch Lomond, near Glasgow.
Islamic Finance & Faith in the SDGs at COP26
For many, a warming climatic system is expected to impact the availability of necessities like freshwater, food security, and energy, while efforts to address climate change, both through adaptation and mitigation, will similarly inform and shape the global development agenda. The links between climate change and sustainable development are strong. Poor and developing countries, particularly least developed countries, will be among those most adversely affected and least able to cope with the anticipated shocks to their social, economic and natural systems.
As national ministers and heads of state convened in Glasgow, Scotland, to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change (UNFCCC), for the 26th UN Climate Change Conference of the Parties (COP26) the Global Ethical Finance Initiative (GEFI) curated a unique programme to focalise this sustainable development challenge through the prism of Islamic finance, a proxy to the global south.
To raise awareness and drive climate action at COP26 GEFI, a non-profit dedicated to enabling finance to deliver positive change and help achieve the UN’s Sustainable Development Goals (SDGs), ran a Path to COP26 campaign. The “Faith in the SDGs” workstream, led by the Islamic Finance Council UK (UKIFC), curated a unique one-day hybrid Islamic finance programme to coincide with the COP26’s finance day (Wednesday 3rd November 2021). Islamic finance experts from across the globe gathered both in-person, at the stunning Ross Priory on the banks of Loch Lomond, and remotely to demonstrate the important role Islamic finance can play in supporting climate action in the global south and beyond.
In the SDGs, UN Member States express their commitment to protect the planet from degradation and take urgent action on climate change. One of the most salient factors that challenge the achievement of the SDGs by 2030 is the shortage of financial resources. Several reports and studies have stated that around US$5-7 trillion dollars are required every year to achieve the SDGs, and with governments and donor agencies unable to meet demand, private sector funding is required.
The natural alignment between the SDGs and Islamic principles together with the size of the industry (currently US $2.5 trillion and expected to reach US $3.8 trillion in 2022[1]) mean that Islamic finance is well placed to create instruments that drive significant capital towards the SDGs and climate action.0 The ambitions of the SDGs are consistent with the objectives of Shariah (maqasid al-Shariah) which aim to bring benefits to mankind and prevent harm as well as ensure sustainability of life on earth. SDG alignment presents a unique opportunity for Islamic financial institutions to showcase the inherent social good and ethical basis of Islamic finance.
One of the key challenges in implementing the Paris Agreement and addressing climate change is the funding required to implement projects that contribute positively to Nationally Determined Contributions (NDCs). Whilst three quarters of countries have adaptation plans in place, financing remains an issue. According to UNEP FI “annual adaptation costs in developing countries are estimated at USD 70 billion” with his figure “expected to reach USD 140-300 billion in 2030 and USD 280-500 billion in 2050”.[2]
Islamic finance is not limited to Muslim countries and has the potential to support the delivery of NDCs. This could be particularly attractive to the 57 Organisation of Islamic Cooperation (OIC) member states which collectively represent over 1.82 billion people (24% of the total world population) and include several low-income countries that are politically or culturally marginalised.
The GEFI / UKIFC Islamic Finance programme at COP26 provided a high profile platform to explore the role Islamic finance can play in attracting the capital needed to achieve the Paris Agreement and deliver the SDGs.
The first session, delivered in partnership with the United Nations (UN) and UN Economic and Social Commission for Western Asia (UNESCWA), discussed how Islamic social financing instruments can collectively promote the principles of social justice, solidarity, brotherhood and mutuality which can serve to help communities respond to and become more resilient to climate change whether related to food and water shortages, displacement as a result of natural disasters, or environmental education amongst other impacts.
Dr. Rola Dashti, Executive Secretary of UNESCWA noted the heavy debt burden in the Arab region, with eight times more debt received than grants for financing climate projects between 2013 and 2019. She highlighted zakat and wakaf assets (which exceed USD$3trillion throughout Muslim countries) as an importance source of grant funding to support innovation in sustainable development. She also provided details of the ESCWA Climate-SDGs Debt Swap / Donor Nexus Initiative which supports the conversion of national debt servicing payments of foreign debt into domestic investment for implementing climate-resilient projects that advance national SDGs. She asked that we all act collectively to utilise Islamic social funds to support the acceleration of the SDGs.
Dr. Al Meraikhi, Humanitarian Envoy to the UN Secretary-General highlighted the launch of International Dialogue on the Role of Islamic Social Financing in Achieving the Sustainable Development Goals between the UN and the Islamic Development Bank (IsDB) and noted that faith-based organisations have a crucial role in addressing the finance gap to achieve the SDGs.
The next session saw the UKIFC, Her Majesty’s Treasury, Ministry of Finance in the Republic of Indonesia Ministry, Islamic Development Bank, London Stock Exchange Group and GEFI jointly announce the launch of a High-Level Working Group on Green Sukuk (HLWG).
The 3-year initiative will direct investment to reduce greenhouse gas emissions in the world’s regions in most need. The announcement followed work of the Global Islamic Finance and UN SDGs Taskforce and a recent report “Innovation in Islamic Finance: Green Sukuk for SDGs” commissioned by UNDP Indonesia in which the UKIFC estimated that an additional US$30+ billion of capital towards the SDGs can be raised by 2025 through green and sustainability sukuk. To unlock this finance the HLWG has been launched to coordinate international efforts. The report showed how green and sustainability sukuk can be a viable financial instrument attracting billions of dollars of capital for green projects that support the delivery of the Paris Agreement.
The HLWG, led by the founding partners, will bring together expert global stakeholders with the UKIFC and GEFI acting as Secretariat. It will focus on the following objectives:
- Ensuring green and sustainability sukuk is highlighted at annual COP summits up to and including 2023 to increase awareness of the instrument and proactively encourage the issuance of such sukuk by all market stakeholders (corporates, multilaterals and sovereigns) as a key Islamic financing key tool.
- Assist and enhance existing established global standard setting bodies and regulatory initiatives run by the UN, IsDB and others (e.g. PRI, NGFS, Transform, PRB) to encourage better alignment of the Islamic finance industry with the global green and sustainability financial movement.
- Identify and address specific existing challenges for green and sustainability sukuk on the supply and demand side.
As part of the introduction to the session UKIFC Managing Director Omar Shaikh outlined the natural alignment between the principles of Islamic finance and the role that green sukuk can play in channelling finance towards the climate emergency and the SDGs.
John Glen, Economic Secretary to the Treasury and City Minister then highlighted the UK’s strong credentials in green and Islamic finance and positioned green sukuk as an important route to secure investment for sustainable projects. He noted the vital role that Islamic finance must play in the green agenda. Julia Hoggett, Chief Executive, London Stock Exchange plc later welcomed the HLWG as a significant milestone for the development of Islamic finance and sustainable finance globally and stated that Islamic finance is a key component of sustainable finance. She also stressed the need to scale green sukuk to ensure that access to finance in a manner consistent with faith values.
As a pioneer in the issuance of international green sukuk, Sri Mulyani Indrawati, Minister of Finance, explained the Republic of Indonesia’s commitment to using the HLWG to share experiences and provide valuable precedents at the same time learning and applying best practices approaches. With the world recovering from global pandemic, Sri Mulyani Indrawati said that the HLWG provides the urgent momentum for nations, multilateral institutions and corporates across the world to work together to grow sustainably for future generations.
The Islamic Finance programme concluded with a Global Islamic Finance and SDGs Taskforce meeting. The Taskforce is a unique collaboration between the public and private sectors spearheaded by the UKIFC, HM Treasury, IsDB and assisted by GEFI. It brings together global Islamic finance practitioners to explore the opportunities for OIC member states to develop a collective approach to sustainable finance and funding the SDGs and climate-linked NDCs.
The meeting included:
- An update from Sima Kamil, Deputy Governor of the State Bank of Pakistan who presented on the pioneering work in sustainable banking being undertaken as part of the Pakistan working group.
- A presentation by Gatehouse Bank, Chief Executive Officer Charles Haresnape on a Guidance Note prepared in partnership with UKIFC and GEFI to provide a consistent approach to reporting and disclosure for Islamic banks signed up to the UNEP FI Principles for Responsible Banking.
- An update from UKIFC Advisory Board member Sultan Choudhury on the progress of the largest ever global Islamic finance survey on sustainability.
After two weeks of negotiating, the Glasgow Climate Pact was successful in maintaining the focus on 1.5 degrees Celsius as well as creating a 2-year timetable for agreeing to more ambitious and faster NDCs to provide a lever for more progressive countries to ensure slower countries make the step up. Although the agreement to “phase down” coal power angered some it is notable that this is the first COP agreement that has made a direct reference to phasing down fossil fuels.
The Pact urges developed countries to “fully deliver” the $100bn per year goal through to 2025 as agreed in 2009. It also agrees to double the proportion of climate finance going towards adaptation and, despite a lack of progress, it confirms that a “technical assistance facility” will be introduced to support loss and damage in relation to climate change in developing countries.
Whilst private finance is not a substitute for increased public finance, it will be vital in increasing the scale and reach of climate action and enabling the transition. The programme was a high-profile platform for Islamic finance at COP26 and through the practically focused discussions has demonstrated how Islamic finance can be used effectively by developing countries to support NDC’s by attracting investment, at scale, to projects that, in line with the Paris Agreement, reduce national greenhouse gas emissions.
View all of the videos from our Path to COP26 programme at https://www.efx.global/cop26/.
[1] ICD – Refinitiv, ‘Islamic Finance Development Report 2019: Shifting Dynamics’ https://www.zawya.com/mena/en/ifg-publications/231019121250Z/
[2] United Nations Environment Programme (2021). Adaptation Gap Report 2020, Nairobi.
UKIFC Featured on Radio 4's You and Yours
We were delighted to be featured on BBC Radio 4 ‘s You and Yours last week to discuss Islamic Student Finance in the UK and the need for Sharia-compliant student loans and finance.
You can find a full link to the programme below: