Pioneering Islamic Sustainable Finance: Insights from London Climate Action Week Round Table
The Islamic Finance Council UK (UKIFC), in partnership with PwC, brought together key industry leaders, Islamic finance experts, and sustainability professionals on Tuesday 25th June in London for an exclusive Unlocking Islamic Sustainable Finance round table. The event, which explored the burgeoning intersection of Islamic finance and sustainability, formed part of the London Climate Action Week (LCAW) programme.
LCAW is an annual event that began in 2019, organised by E3G. It gathers global leaders, organisations, and communities to address climate change challenges. LCAW features diverse activities such as forums, workshops, and showcases, playing a crucial role in advancing climate solutions and fostering collaboration among policymakers, businesses, and the public. The week highlights London’s commitment to sustainability and climate action, reinforcing its role as a global leader in addressing environmental issues.
The Unlocking Islamic Sustainable Finance round table was the first Islamic finance event to feature on the LCAW programme, thereby marking a significant milestone in the industry’s engagement with global climate action efforts.
Key areas of discussion are summarised below:
Market Opportunity and Growth for Islamic Sustainable Finance
According to new data from the Al Huda Center of Islamic Banking and Economics, global Islamic banking assets could hit $5 trillion by 2025, while S&P projects that the Islamic finance sector could experience an annual growth rate of 10 per cent in 2024. The round table discussions highlighted the substantial role Islamic sustainable finance can play in achieving the transition to net zero and achieving the UN Sustainable Development Goals (SDGs).
During the round table, it was also highlighted that adherence to Shariah-compliant finance reinforces consumer trust in the institutions that uphold these principles, particularly in Organization of Islamic Cooperation member states, many of whom are impacted by climate change and in need of finance and investment. Islamic finance also plays a pivotal role in enhancing financial inclusion by offering alternative mechanisms that cater to underserved populations.
With an increasing recognition that Islamic finance can help deploy capital to where it is most needed, according to the Financing a Sustainable Future report, green and sustainability sukuk has emerged as an innovative instrument which is attracting strong market demand.
Green Sukuk Guidance
The discussion moved on to what might be the most significant recent development in relation to Islamic finance in recent years. The publication of Guidance on Green, Social, and Sustainability Sukuk was a key output of the High-Level Working Group on Green and Sustainable Sukuk (HLWG) that was developed by the London Stock Exchange Group, Islamic Development Bank and International Capital Market Association. The guidance aims to promote sustainable finance instruments within the global sukuk market, providing clarity on issuing sukuk aligned with principles of sustainability, facilitating investments in projects that benefit the environment and society.
Sukuk has grown to become a significant asset class in the global bond markets with around US$220 billion issuances last year. In the sukuk market, there are roughly US$1 trillion worth of outstanding shares. This year, US$5 trillion worth of bonds have been issued, indicating a 50–60% increase in the market. Meanwhile, Green and sustainable sukuk issuances accounted for less than US$500 million in 2017 and increased to US$10.8 billion last year. In comparison, the market for green social sustainability bonds was valued at US$50 billion in 2014, when the Green Bond Principles were established and Global ESG bond issuance reached $621.8 billion in the first nine months of 2023. As a result, the guidance would also benefit issuers and individuals who are new to the sukuk market, especially green investors. It also takes a practical view especially in terms of developing economies particularly in the Middle East where a substantial portion is driven by sectors which need to transition. Chief financial officers of companies, sovereign teams, asset managers, and Shariah boards are anticipated stakeholders of the guidance.
Regulatory Developments
A key focus of the discussion was the evolving regulatory landscape, particularly in the Gulf region. The UAE Central Bank’s recent mandate requiring Islamic financial institutions to develop climate action plans through its Guiding Principles Regarding Islamic Sustainable Finance signals a significant shift in regulatory approaches to sustainability. This development aligns with UKIFC’s advocacy for greater integration of sustainability principles within Islamic finance regulatory frameworks.
It was highlighted that Islamic banks, while making efforts to align with the guidance, should measure changes to track progress. There was a consensus that they should also be given some flexibility during the transition process.
Tayyib Inspired – Islamic Sustainable Investing Platform (ISIP)
The round table also provided an opportunity for UKIFC to introduce its Islamic Sustainable Investing Platform (ISIP) to the UK audience having been showcased recently in Dubai, Kuala Lumpur and Istanbul. The ISIP is inspired and framed by the Islamic concept of “Tayyib” (pure, wholesome, and impactful). It complements the existing “halal” paradigm successfully built by the early Islamic finance pioneers and supports the development of the Islamic asset management sector. It reflects an aspiration for excellence which has been applied to Islamic investment sector.
ISIP serves as a showcase for independently assessed Islamic investment products that align with sustainability goals. The launch of the platform is a significant step forward in making Islamic sustainable finance more accessible and visible to a global audience. It presents an opportunity for Islamic finance to contribute unique perspectives to global sustainability efforts.
Challenges, Opportunities and Updates
Participants engaged in discussions about the challenges facing the Islamic sustainable finance sector. A key issue that emerged was the need to broaden the investor base, particularly among pension funds and institutional investors. Overcoming this challenge highlighted the importance of education and awareness-raising.
The Accounting and Auditing Organisation for Islamic Financial Institution (AAOIFI) Standard 62 on Sukuk was mentioned as a challenge facing the industry. It was noted that the standard now gives a narrower definition of Sukuk and a higher entry level into the market. This will impact green and non-green sukuk issuances, thereby becoming a key consideration for all market players.
On a more positive note, some UKIFC-led research was shared during the round table which, encouragingly, showed that 80% of Islamic finance customers want products aligned with SDGs. This consumer demand presents a clear opportunity for the industry to develop products that meet both religious and sustainability criteria.
Looking Ahead
The round table concluded with a sense of optimism about the future of Islamic sustainable finance. Key areas for future focus include:
- Continued collaboration between Islamic finance institutions, regulators, and mainstream sustainable finance players
- Further development of standards and guidelines to facilitate market growth
- Enhanced efforts to educate investors and consumers about Islamic sustainable finance products
- Exploration of how Islamic finance principles can contribute to addressing global sustainability challenges
- Exploration whether there was appetite for shariah compliant pensions from Islamic banking customers
As a pioneer in this field, UKIFC remains committed to driving forward the Islamic sustainable finance agenda. By combining the ethical principles of Islamic finance with contemporary sustainability frameworks, a new suite of financial solutions can be made available that benefit both people and planet.
Unlocking Islamic Sustainable Finance Round Table in Dubai
The Unlocking Islamic Sustainable Finance round table took place at the PwC Middle East office in Dubai on Thursday 23rd May 2024.
At the event, the Islamic Sustainable Investing Platform (ISIP) Application Guidelines were released and discussions with the UAE Central Bank were held on the implementation of the Central Bank’s Guiding Principles Regarding Islamic Sustainable Finance released just before COP28.
Participants included senior representatives of financial institutions and market makers such as the Mashreq Bank, Dubai Islamic Bank, S&P Group, Abu Dhabi Islamic Bank, London Stock Exchange Group, National Bank of Fujairah Islamic, Mashreq Bank, Ajman Bank, Dubai Islamic Bank, Emirates Islamic Bank, Standard Chartered Bank, Commercial Bank of Dubai, Abu Dhabi Islamic Bank, Emirates Islamic Bank, HSBC, PRI, and Emirates NBD.
Key discussion points from the session are summarised below:
Overview of Islamic Sustainable Finance
The opening remarks noted the growth of Islamic finance assets and the increasing issuance of green sukuk. Headline figures include:
- Green and sustainable sukuk issuances have surged, crossing $10 billion last year
- Islamic Finance Development report by ICD ELSEC, noted that the Islamic finance market is rapidly growing, with assets predicted to reach $6.7 trillion by 2027
Islamic finance and sustainability are critical areas that present challenges and immense opportunities at their intersection.
Global Ethical Finance Initiative (GEFI) and the Islamic Finance, Council, UK (UKIFC) highlighted their activities at the forefront of developing Islamic sustainable finance and mainstream sustainable finance ecosystems. Through collaborative efforts, they have launched several initiatives, such as the Global Task Force on Islamic Finance and UN Sustainable Development Goals (SDGs) and High-level Working Groups on Green and Sustainable Sukuk. These initiatives, alongside thought leadership, advocacy, and capacity building, aim to promote Islamic sustainable finance on a global scale.
Regulating Islamic Sustainable Finance – UAE Central Bank Approach
Discussions noted that despite being perceived as a natural leader in sustainability, Islamic finance initially did not take the forefront in this area globally. Historically, there was a misconception and a disconnect between the expectations of Islamic finance and the principles of sustainability. While Islamic finance inherently aligns with sustainability through its emphasis on ethical investments and social responsibility, it lacks a structured approach and clear guidelines. Recent developments, including the establishment of guiding principles and taxonomies, aim to bridge this gap. The UAE Central Bank recognised this gap and issued guiding principles in 2023 to encourage Islamic financial institutions to incorporate sustainability into their Sharia decision-making.
The guidelines are designed to prompt action and frame the concept of sustainability within shari’ah by reference to principles of socially responsible and ethical ownership and utilisation of wealth/resources (trusteeship, justice, equity, ihsan and adl). They utilise a framework derived from Sharia injunctions on permissible, recommended, obligatory, discouraged, and prohibited activities to evaluate investments through a sustainability lens.
Implementation considerations discussed include:
- lack of a taxonomy at present
- integrating this new layer into existing Sharia decision making processes without disrupting business flows and guiding the scholars through the process
- banks are exploring how best to develop internal processes and controls to comply with the principles
A financial institution shared its experience of using a two-screen process in implementing the guidelines. There is one Shariah screening process and then a second green or sustainability screening process. It was emphasised that this was not a combined process but rather two separate perspectives, the Islamic and the sustainability. Banks also shared how they internally score their clients and assess how they can help them on that journey toward net zero. Other examples from the banking industry highlighted the role of giving incentives to clients who reduce their water consumption or add renewable energy sources to their operations. Where targets are met discounts are applied on their financing rate.
It was suggested that the Central Bank should allow implementation of the guidelines in phases considering the current system has been operating for over 50 years. Other discussion points included the importance of giving incentives to banks and other ecosystem actors to adopt enhanced sustainability approaches. A point was also raised about further regulation that will guide banks on how to support Shariah scholars in the process of implementing the guidelines.
Introduction of the Islamic Sustainable Investing Platform (ISIP)
The ISIP was initially announced at COP28 and the platform application guidelines formally revealed at the roundtable. ISIP provides a listing of independently assessed, validated and showcased Islamic investment products that are directly aligned to sustainability goals. The platform draws inspiration from the concept of “Tayyib,” (meaning pure, wholesome, and impactful) and aims to encourage the development of Islamic sustainable finance.
Rather than add another burden, the ISIP approach leverages existing market frameworks like the Principles for Responsible Investment (PRI) that major Islamic investors have already adopted. Islamic financial institutions can apply to have their Sharia-compliant products across asset classes like equities, sukuk, real estate, and private equity assessed for sustainability criteria by independent third parties.
Summary
The roundtable facilitated an excellent set of engaging and insightful discussions amongst financial institutions in the UAE to explore how the Central Bank’s Guiding Principles Regarding Islamic Sustainable Finance can be effectively implemented. GEFI/UKIFC plans to host a larger Islamic Sustainable Finance event in Dubai in Q4 2024. Organisations interested in partnering are invited to get in touch.
Shaping a Sustainable Future: UKIFC's Impactful Journey at COP28 and Beyond
The Islamic Finance Council UK (UKIFC) was a strategic partner for the Global Ethical Finance Initiative (GEFI)’s #PATHTOCOP28 Programme – the first and largest finance-focused campaign for COP28.
The programme had seven high–profile events which included the Evening Lectures 'Adam Smith & Ibn Khaldun at #PATHTOCOP28, the COP28 Climate Finance Summit: Financing Survival which Scotland’s First Minister – Humza Yousaf; Unlocking Islamic Finance at COP28, and the SDG Hive.
The Unlocking Islamic Finance Summit was the largest Islamic finance event at COP28. The event which had in attendance global experts and scholars in the industry, delved into discussions on Green and Sustainable Sukuk, transitioning from Halal to Tayyib by enhancing consideration of ESG factors, and the pivotal role of Shariah scholars in promoting sustainability.
The UKIFC has been at the forefront of advancing the intersection of Islamic finance and sustainable development over the years, we are therefore delighted to share some remarkable achievements and announcements that underscore our commitment to shaping a sustainable future through Islamic finance.
- PRE-COP28
Unlocking Islamic Finance Insight Series – LAUNCHED BEFORE COP
The UKIFC has released an Unlocking Islamic Finance Insight Series, a collection of blogs and articles that discuss key issues and opportunities in Islamic finance. This ongoing initiative aims to deepen understanding and awareness of Islamic finance through engaging discussions, webinars, and expert opinions. It includes articles about ESG Frameworks and the Imperative of Inclusivity, Challenges of Islamic Financial Institutions Engaging with Net Zero Frameworks and Other Initiatives, and Green Sukuk for Nature and Biodiversity Conservation: the Next Frontier.
Other Islamic Finance News
We are also happy with the launch of the annual report on the Islamic finance industry, titled “Navigating Uncertainty” by our partner London Stock Exchange Group (LSEG) and the Islamic Corporation for the Development of the Private Sector (ICD) during the 18th AAOIFI-IsDB Annual Islamic Banking and Finance Conference.
The Islamic Finance Development Report 2023 states that the assets of the global Islamic finance sector grew by 11% to US$4.5 trillion in 2022, with 72% of the industry's total assets coming from Islamic banking. It is anticipated that the industry will expand by US$6.7 trillion by 2027, having grown by 163% since 2012.
- BLUE ZONE ANNOUNCEMENT
ICMA, IsDB, and LSEG Partnership for Green Sukuk Guidelines – LAUNCHED IN BLUE ZONE
UKIFC welcomed the collaboration between the High-Level Working Group on Green Sukuk (HLWG) with ICMA through its partners IsDB, and LSEG to produce a Green Sukuk practitioners’ guide which will be in line with the Green Bond Principles. This collaboration aims to support the growth of the green sukuk market, mobilizing climate finance from global capital markets. The guide will enhance investor awareness of the sukuk asset class, furthering our collective efforts toward climate and sustainability goals. The UKIFC continues to support the work of the HLWG as its Secretariat.
- UNLOCKING ISLAMIC FINANCE SUMMIT
Launch of Global Islamic Finance and UN SDGs Taskforce Key Outputs Report – LAUNCHED AT SUMMIT
With the close of the Global Islamic Finance and UN SDGs Taskforce(Taskforce) we released its final report - Global Islamic Finance and UN SDGs Taskforce Key Outputs Report which delves into all the activities and achievements of the Taskforce. It also highlights the integral role Islamic finance plays in contributing to the United Nations Sustainable Development Goals, offering insights and recommendations for a positive global impact.
Through advocacy efforts at major global forums and the production of technical resources, the Taskforce successfully engaged with four working groups, focusing on Disclosures and Reporting, Education and Awareness, Pakistan, and the High-Level Working Group on Green Sukuk (HLWG).
The UKIFC looks forward to working with partners who are eager to take the recommendations from the report forward.
Green Sukuk Updated Report 2023 – LAUNCHED AT SUMMIT
The HLWG remains the only workstream that continues after the successful tenure of the Taskforce. Its commitment to sustainable finance is further emphasized in the Financing a Sustainable Future Green and Sustainability Sukuk Updated Report 2023. This report which is an update to the 2022 report provides a comprehensive analysis of the latest developments and trends in the green sukuk market, showcasing Islamic finance's pivotal role in driving environmentally conscious initiatives. The report shows global green and sustainability sukuk issuances exceeding $10 billion in the first three quarters of 2023 as the instrument gains momentum for financing environmental projects.
According to the report, global Green and Sustainability Sukuk issuance has surpassed $10 billion in the third quarter of 2023 compared to $9.4 billion in 2022. Indonesia, Malaysia, and Saudi Arabia also collectively contributed 77% of the total cumulative issuance by Q3 2023, underscoring the key role played by these nations in driving sustainability within the Islamic finance sector.
Tayyib Secretariat Launch – LAUNCHED AT SUMMIT
This global initiative, unveiled at GEFI's Unlocking Islamic Finance Summit in Dubai, developed following a year-long market assessment by UKIFC and GEFI. The Tayyib approach leverages the Shariah-compliant model of Islamic finance to cultivate an enhanced ESG and sustainability framework. Positioned as a potential best practice approach to responsible investing, the Tayyib Inspired Secretariat, a collaborative effort involving Malaysia, the UAE, and the UK, aims to develop Tayyib-inspired investment principles, foster market expansion, and contribute to the mainstream sustainable finance sector.
Co-managed by UKIFC and ISRA Consulting, with DIFC as the Host Financial Centre and PwC Dubai as the Technical Partner, the Tayyib Secretariat boasts an Advisory Panel representing Shariah scholars, multilateral bodies, and industry developmental stakeholders, along with an Industry Consultation Group to ensure comprehensive support and collaboration.
- UKIFC WIDER ENGAGEMENT AT COP28
Our Director and Advisory Board Member, Omar Shaikh attended three equally important events at COP28. He moderated the Fireside Chat titled “Leveraging Islamic Finance for Sustainability: MENA and ASEAN Perspectives” on 3rd December. The event was held at the Malaysia Pavilion. The theme for the Malaysia Pavilion for COP28 was “Going Beyond: Green Growth, Resilient Community, Liveable Planet”.
Experts on Islamic finance and sustainability gathered to discuss leveraging Islamic finance instruments to promote sustainability initiatives in the MENA and ASEAN regions, exploring the latest trends while considering the unique regulatory environments. Panelists addressed the current Islamic finance landscape and sustainability challenges, shared success stories demonstrating Islamic finance's pivotal sustainability role, and offered solutions to specific regulatory and practical obstacles.
On 4th December, he was a panelist at a UNHCR & Greenpeace Session on “Islamic Social Finance for Climate Action” held at the Faith Pavillon (Blue Zone). The discussion centred on how Islamic social finance might help address crises involving displacement, highlighting the innovative ways that the UNHCR has used zakat, sadaqah, and waqf as sustainable finance solutions.
At the Knowledge Hub on the 5th of December, he was one of the key stakeholders who attended the “Empowering society through financial resilience” event which was hosted by Abu Dhabi Islamic Bank (ADIB), in partnership with the London Stock Exchange Group (LSEG). The gathering brought together influential industry participants to explore market insights and trends with a particular emphasis on the role Islamic finance can play in advancing sustainable development goals (SDGs).
- CONCLUSION
UKIFC's recent achievements stand as a testament to the collective dedication and expertise of our community. The Unlocking Islamic Finance Summit emerged as a significant highlight of COP28, gathering global experts and scholars to explore themes like Green and Sustainable Sukuk, transitioning from Halal to Tayyib with enhanced consideration of ESG factors, and the crucial role of Shariah scholars in promoting sustainability.
The summit also witnessed the launch of the Global Islamic Finance and UN SDGs Taskforce Key Outputs Report and the Tayyib Secretariat, a transformative global initiative. With Islamic finance assets projected to grow 163% by 2027, the UKIFC remains committed to harnessing the industry's immense potential through strategic partnerships and initiatives promoting sustainable development.
UKIFC Signs MOU with Islamic University of Maldives to Advance Islamic Finance
We are excited to announce that the UK Islamic Finance Council (UKIFC) has signed a memorandum of understanding (MOU) with the Islamic University of Maldives (IUM) at COP28 to collaborate on several key initiatives to promote Islamic finance in the Maldives.
The collaboration is set to unfold through four dynamic programs aimed at empowering Maldivian bankers, advancing academic programs, promoting community awareness of Islamic finance, and fostering sustainability in the financial sector. This strategic partnership underscores UKIFC’s commitment to fostering the growth of Islamic finance globally.
Financing a Sustainable Future: High-Level Working Group on Green & Sustainability Sukuk releases its second report at COP28
- Global Green and Sustainability Sukuk issuance exceeded $10 billion by the third quarter of 2023 compared to $9.4 billion in 2022, according to London Stock Exchange Group (LSEG) data.
- Indonesia, Malaysia, and Saudi Arabia have raised 77% of the total value of cumulative issuance as of Q3 2023
- ESG sukuk issuance from GCC-based entities was $6.1 billion during the first nine months of 2023, nearly double their 2022 full-year level. UAE-based corporates issued a record $3.9 billion worth of these sukuk, accounting for 38% of the global total, making the UAE the largest issuance base for ESG sukuk to date in 2023.
- Corporate issuers have become increasingly active in the green and sustainability sukuk market, accounting for 65% of issuance by the third quarter of 2023, an increase from 41% in 2022.
Global Green and Sustainability Sukuk issuance exceeded $10 billion by the third quarter of 2023, according to LSEG data published today by the High-Level Working Group (HLWG) on Green and Sustainability Sukuk.
As part of the Global Ethical Finance Initiative’s (GEFI) COP28 Unlocking Islamic Finance Summit held at the Dubai International Finance Centre (DIFC), the HLWG published its second report entitled “Financing a Sustainable Future: Green and Sustainability Update Report 2023”. The event, attended by over 300 practitioners, explored how Islamic finance and sustainability principles can be aligned through new standards and improved practices in the finance industry.
The HLWG was launched in November 2021 at COP26 by the Islamic Finance Council UK, HM Treasury, the Ministry of Finance in the Republic of Indonesia, Islamic Development Bank, LSEG, and GEFI.
The report is a follow-up to Financing a Sustainable Future: Green and Sustainability Report 2022, showcased at COP27 in Sharm El-Sheikh, that provided an introduction to, and overview of, the green and sustainability sukuk market. This year’s updated report includes the latest market figures and details of some recent flagship issuances.
The HLWG notes its support for the announcement by the Islamic Development Bank (IsDB, the Bank), the International Capital Market Association (ICMA) and LSEG on the sidelines of the COP28 in Dubai to develop a practitioners’ guide on the issuance of Sukuk in line with the Green Bond Principles and Sustainability Bond Guidelines as published by ICMA, which was a development suggested in the recommendations of its 2022 report.
The HLWG intends to use the momentum from COP28 to continue to raise awareness and inspire more green and sustainability sukuk issuances to help address climate change.
Omar Shaikh, Advisory Board Member & Director, Islamic Finance Council UK (UKIFC), commented: “The HLWG continues to affirm that progress can be made with consistent effort no matter how little. The updated report highlights great improvement in the sukuk market. The workplan of the HLWG having been approved, will provide room for more collaborations for the promotion of green and sustainability sukuk.”
Shrey Kohli, Director, Head of Debt Capital Markets, London Stock Exchange, and Chair of the HLWG on Green and Sustainability Sukuk, said: “With over $10 billion raised in the first three quarters, 2023 marks a record year for Green and Sustainability Sukuk. At COP28, we have seen the recommendations of the HLWG resonate and drive collaboration within the industry. We will continue to work with our partners to enhance the awareness of Sukuk as an asset class and accelerate progress towards climate and sustainability goals worldwide.”
Mustafa Adil, Head of Islamic Finance, Data & Analytics, LSEG, said: “Embracing sustainability in Islamic finance isn’t just a choice; it’s a responsibility. By aligning our principles with the global green movement, we can create a more equitable and environmentally conscious financial future for all.”
Read the report:
About the HLWG
The HLWG is a focused, high-profile group of global stakeholders that is led by its founding partners. Shrey Kohli, Head of Debt Capital Markets at the London Stock Exchange, is the current Chair. It has a 3-year initiative that directs investment to reduce greenhouse gas emissions in the world’s regions in most need. It is currently in its second year. The UKIFC, together with the Global Ethical Finance Initiative, acts as its Secretariat. The HLWG focuses 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 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.
Read more about the HLWG here: https://ukifc.com/sdg/green-sukuk
About The Islamic Finance Council UK (UKIFC)
The Islamic Finance Council UK (UKIFC) is a specialist, not-for-profit, advisory and developmental body focused on promoting and enhancing the global Islamic and ethical finance industry. It has helped six countries develop enabling regulatory frameworks for Islamic finance, enhancing financial inclusion for over 15 million people, established the award-winning Ethical Finance Round Table series running since 2010, launched the world’s first joint venture between Islamic finance and the Church of Scotland, and delivered development sessions to over 500 Islamic scholars across the globe. In 2020 the UKIFC, alongside the British Government’s Treasury department, established the Islamic Finance and Sustainable Development Goals (SGDs) taskforce, which will be anchored in London.
FOR MORE INFORMATION OR TO ARRANGE AN INTERVIEW PLEASE CONTACT:
Chris Tait – chris@ukifc.com / +44(0)7931 103573
Collaboration with ICMA announced
The HLWG, represented by the Islamic Development Bank (IsDB) and London Stock Exchange Group (LSEG), announced at COP28 in Dubai, a collaboration with ICMA to produce green sukuk guidance in line with the Green Bond Principles. The pioneering initiative will support the growth of the green sukuk market for mobilizing climate finance from global capital markets.
IsDB, LSEG and ICMA will work together to develop the guidance for global capital market practitioners. It is expected that the guidance will enhance investor awareness of the sukuk asset class.
New Tayyib Initiative Launches to Unlock $500 billion Opportunity for Islamic Finance
Dubai, 5th December 2023.
- The Islamic finance sector is valued at over $4 trillion and spans prominent financial hubs across the globe, including London, Luxembourg, Dublin, Istanbul, Dubai, Bahrain, and Kuala Lumpur
- Responsible investing is rapidly growing and is projected to surpass $30 trillion by 2026
- With over 1.6bn Muslims globally ensuring all voices are included in addressing the “S” in ESG enables a more considered and relevant solutions
- Initiative builds on the Shariah-compliant model of Islamic finance, to develop a Tayibb-inspired approach with enhanced ESG and sustainability considerations
- Tayyib Secretariat, involving global Islamic finance experts, will develop Tayyib-inspired investment principles, open up new markets and inspire new investment products
- Tayyib Secretariat will help align Islamic finance with conventional ESG and impact investing, providing a voice for Islamic for Islamic finance in the mainstream sustainable finance sector
A pioneering finance initiative inspired by the Islamic concept of “Tayyib” (pure, wholesome, and impactful) has launched today at GEFI’s Unlocking Islamic Finance Summit, hosted by the Dubai International Finance Centre.
The announcement of the Tayyib Secretariat comes at a time when the eyes of the world are focused on Dubai as it hosts the UN’s 28th annual climate summit, COP28. The initiative, an output of a 1-year market assessment commissioned by UKIFC and GEFI last year, is seeking to build on the Shariah-compliant model of Islamic finance, to develop a Tayibb-inspired approach with enhanced ESG and sustainability considerations.
Using the principles within the Maqasid al-Shariah (objectives of Shariah) and Qawaid (Islamic legal maxims), the Tayyib approach has the potential to offer a new best practice approach to responsible investing.
The Tayyib Secretariat is a global collaboration involving Malaysia, UAE and the UK, UAE. The Secretariat will be co-managed by the UKIFC and ISRA Consulting with DIFC the Host Financial Centre and PwC Dubai Technical Partner. An Advisory Panel (representing shariah scholars, multilateral bodies, and select industry developmental stakeholders) and an Industry Consultation Group will be established to support the Secretariat.
The Tayyib Secretariat will be focusing on:
- Developing a set of investment principles inspired by Tayyib across select asset classes
- Supporting Islamic asset managers to access global ESG liquidity pools
- Inspiring new innovative ESG linked, Tayyib-inspired products
- Aligning Islamic finance with conventional ESG and impact investing
- Providing a voice for Islamic for Islamic finance in the mainstream sustainable finance sector
At the launch, GEFI Global Steering Group Chair Dame Susan Rice said: “With global growth in sustainable finance, it is an opportune moment for the Tayyib concept and the beautiful principles it encapsulates to come to the fore in Islamic finance.”
Leading global scholar Dr. Mohamed Ali Elgari added “I have no doubts that Islamic principles can have a positive impact in the global transition to a more sustainable and equitable economy. I urge the Islamic finance industry to embrace the opportunities that lie ahead and to work collaboratively in the ESG finance space to create a more sustainable future for all.
Countdown to COP28
The countdown to the 28th UN Climate Change Conference of the Parties (COP28) has begun. As the world gears up to address the cross-cutting themes of finance, technology, innovation, and inclusion, here are key reasons you should keep an eye on COP28:
- Learn about the latest trends:
Islamic finance principles of social responsibility naturally align with sustainability objectives. With COP28 being hosted in Dubai, there will be more of a focus on Islamic Finance than ever before, offering an opportunity to understand how Islamic finance instruments like green sukuk can support climate mitigation and adaptation projects. The Global Ethical Finance Initiative (GEFI) in partnership with the Islamic Finance Council, UK (UKIFC) is putting together the largest Islamic Finance focused event at COP, set to share insights on how Islamic finance offers an ethical model for financing sustainability.
- Ethical Investments:
, aligning well with the goals of COP28. There will be opportunities to explore ethical investments that adhere to both Islamic finance principles and environmental sustainability. Companies like NuQi Wealth which provides opportunities for ethical investment will be at COP.
- Contribute to shaping policy:
With sustainability a growing priority worldwide, policymakers are looking for solutions. COP28 will negotiate policies like emissions reductions, adaptation goals, and climate funding mechanisms. With key policymakers from all over the world attending, participants will have the opportunity to share their perspectives on how Islamic finance can be furthered through policies, regulations, and tax frameworks to drive sustainable development.
- Join the global community:
COP events are global in scope, with participation from governments, businesses, and organizations from around the world which offers the chance for attendees to network and collaborate with international stakeholders who are shaping the future of finance and sustainability.
Islamic banks like Gatehouse Bank, takaful providers, law firms, fintechs, consultants, and other professionals will be in attendance. Also, DDCAP Group, a company that offers the Islamic financial sector ethical, sustainable intermediary services, will be at COP28.
- Innovative Solutions:
The conference is a hub for innovation and solutions. Discover the latest advancements in green technology, climate mitigation, and adaptation strategies.
The UKIFC will be launching the Tayyib Project at the Unlocking Islamic Finance Summit at COP28 on Tuesday, 5th December 2023. This innovative kitemark unites best practices of ESG and Shariah compliant finance, aimed at facilitating the development of sustainable financial products that are both Islamic and conventional finance approved.
The "Unlocking Islamic Finance at COP 28" event is where the intersection of Islamic finance and climate action will take centre stage. Learn more about it here!
#IslamicFinance #COP28 #Sustainability #EthicalFinance
Reflections from the SDG Hive Islamic Finance and ESG Session
In a rapidly evolving world where the concept of sustainability has gained paramount importance, the intersection of Islamic finance (IF) and Environmental, Social, and Governance (ESG) principles has emerged as a topic of great significance. I recently had the privilege of attending a thought-provoking session at the Global Ethical Finance Initiative (GEFI) SDG Hive, where experts like Dr. Hayat Sindi, Tan Sri Azman Mokthar, and Dr. Akram Laldin discussed the integration of IF with SDGs. Here, I'd like to reflect on the key takeaways from this enlightening session titled – “How Islamic finance and its approach can be integrated with the wider ESG movement; what can each discipline learn from the other?”
Understanding Halal and Tayyib: Tan Sri Azman set the stage by elucidating the Islamic concepts of "halal" (permissible) and "tayyib" (pure and wholesome). While "halal" addresses what is allowed, "tayyib" goes further by encompassing the idea of doing no harm. This holistic perspective, deeply rooted in Islamic values, resonates with the principles of responsible and impact investing. It emphasizes the importance of not just complying with religious guidelines but also considering the broader societal and environmental impact of financial decisions.
The Historical Evolution of Islamic Finance: A historical overview by Tan Sri Azman revealed that Islamic finance traces its roots back to the 13th century but gained prominence in the 20th century, particularly in post-colonial economies like Malaysia. Malaysia's journey from a halal-based economy to one with trillions of Islamic assets underscores the substantial growth in this sector. However, it also raises questions about whether this growth adequately addresses issues of substance, sustainability, and inclusivity.
Shariah Principles and Innovation: Dr. Akram elaborated on the core principles of Shariah in financial transactions, emphasizing that innovations are allowed as long as they do not contradict the Quran and Sunnah. This flexibility allows for creative financial solutions. However, the focus shouldn't merely be on whether a transaction is "halal." We must delve deeper and assess its environmental and social impact.
ESG and Shariah Compliance: Dr. Akram highlighted the commonalities between ESG criteria and Shariah principles, noting that both aim to promote ethical and responsible behaviour. While ESG criteria are generally considered compliant with Islamic finance, the challenge lies in implementing them consistently across different jurisdictions. Achieving standardization in this regard remains an ongoing effort.
Language and Inclusivity: A crucial point raised during the Q&A session was about language and inclusivity. Ms Modupe Ladipo noted that using Arabic terminology often excludes people and suggested the use of more inclusive language. Dr. Akram's response emphasized the adaptability of Islamic finance terminologies to local contexts. Rachel A. Aron stressed the importance of outreach programs to promote understanding, understanding the existing framework, and engaging the regulators in those countries was important.
Shared Values and Positive Impact: The discussion also touched on shared values and positive impact. It was intriguing to learn how different faiths are shifting their perspectives on financial matters, moving from a focus on avoiding harm to actively seeking positive impacts. This shift is reflected in various initiatives, including investment in small businesses and the issuance of ESG-compliant bonds by churches.
Project Tayyib: Omar Shaikh highlighted that Project Tayyib was set to launch at COP28. The goal is to launch the first Islamic asset management kitemark, which asset managers can aim for and achieve provided they adhere to ESG investment best practises while remaining Shariah compliant and would cover four asset classes.
Responsible Banking: Andy Homer of Gatehouse Bank spoke about its Woodland account. He explained that for every such account opened, the bank plants a tree in the customer’s name. I found this really interesting especially when he said customers often drove to different locations within the UK to visit their trees.
The SDG Hive session on Islamic Finance and ESG provided valuable insights into the evolving landscape of responsible and sustainable finance. It reinforced for me the tremendous opportunity at the intersection of faith and finance. It underscored the need for Islamic finance to go beyond mere compliance and focus on the broader impact of financial decisions. Additionally, the session highlighted the potential for collaboration and the need for faith voices to be present in sustainability conversations. It is evident that the convergence of Islamic finance and ESG principles holds great promise for creating a more inclusive, sustainable, and ethically responsible financial ecosystem.
Islamic Finance and UN SDGs: A Customer Perspective
Two key publications highlight the nexus between Islamic Finance and the UN Sustainable Development Goals (UN SDGs). In these papers, about 2000 respondents were surveyed from different Islamic financial institutions around the world, including those in Pakistan, Malaysia, the UK, Australia, and Nigeria.
These reports were among the outputs of the Global Islamic Finance and UN SDGs Taskforce, an innovative public-private partnership that examines the potential contribution of the Islamic finance sector to closing this funding gap as well as the potential business opportunities the SDGs offer the sector.
In this blog, we discuss the main highlights of the Islamic Finance and the UN SDGs Retail Banking Customer Perspectives Global Survey 2023 and the Attitudes of banking customers towards the UN SDGs Global Survey 2023.
The first report found the following:
- Ethical Commitment: 96% of respondents emphasized the importance of their financial products aligning with their personal values and ethics emphasizing that customers are committed to ethical banking.
- Demand for SDG Products: A significant 90% of respondents highlighted the importance of their banks offering products that aligned with the UN SDGs, indicating a demand for sustainable financial offerings.
- Poverty Alleviation: Social responsibility proved to be a high priority as 95% of respondents rated reducing poverty to be of high importance.
- Sustainability Encouragement: A notable 71% stated that the alignment of financial products with sustainability would motivate them to use their bank's products more actively, hinting at the potential of sustainable finance to engage customers.
- Premium for Alignment: An impressive 87% of respondents expressed their willingness to pay a premium for UN SDG-aligned products, demonstrating a strong commitment to values-driven banking.
The second survey categorized the 17 SDGs into four core areas: Reducing poverty and hunger, Injustice and equality, Environment and climate change, and Sustainable economic development. These categories were further divided into the Global North and Global South. Global South consisted of banks in Pakistan, Nigeria, and Malaysia while the institutions in Australia and UK made up the Global North.
The key findings include:
- Regional Disparities and Priorities: While the Global North exhibited a higher response rate, it was in the areas of "Injustice and equality" and "Environment and climate change" where significant differences emerged. This suggests that economic SDGs tend to hold greater importance in the Global South, whereas social and environmental issues are relatively more critical in the Global North concerning the SDGs as a whole.
- Alignment with Core SDG Areas: Survey participants overwhelmingly endorsed the alignment of Islamic finance with the four core SDG areas (reducing poverty and hunger, equality, environment, and economic development), with over 90% considering this alignment vital.
- Terminology and Awareness: There were disparities in terms of terminologies. For instance, "Net Zero" displayed significant awareness disparities between the Global North and Global South. “Impact investing" was more recognized in the Global South, while "ethical finance" garnered higher awareness in the Global North. This indicates that respondents in the Global North may possess a somewhat higher awareness of certain trends, especially those related to sustainability.
- Alignment with Core SDG Areas: Survey participants overwhelmingly endorsed the alignment of Islamic finance with the four core SDG areas (reducing poverty and hunger, equality, environment, and economic development), with over 90% considering this alignment vital.
- Seeking Information: Finally, the survey explored how respondents accessed information, with social media and website news emerging as the primary sources in both the Global North and Global South. Facebook was the preferred platform in the Global South, while LinkedIn took precedence in the Global North.
Overall, the surveys revealed respondents across regions showed keenness for aligning financial products with the SDGs once they understood the SDGs, moderate overall awareness of the SDGs, and a substantial willingness to pay for SDG-related financial products.
The SDGs represent an opportunity for Islamic finance institutions to drive sustainability and positive change. By utilising the SDGs in communications with customers about issues of social and responsibility, Islamic finance institutions have an opportunity to increase brand value and customer engagement.
By harnessing financial innovation to expand access to values-driven products, improve financial inclusion, support renewable energy investments, and finance projects alleviating poverty, Islamic banks and financial institutions can fulfill their purpose of bringing shared prosperity in an ethical manner.
Join us this Thursday for a lunchtime chat, 1:30 - 2 pm, where we explore these findings and learn more with Sultan Choudhury OBE.