Amid an ongoing severe global healthcare crisis caused by the relentless spread of Covid-19 across the world, some research institutions and scientific entities are wondering if and how the world will change after the virus has eventually subsided. In this particular case, a new report issued last week is shedding light on the anticipated fundamental changes of the corporate world in terms of economic and social sustainability — and what role Islamic finance plays in it with regards to the Sustainable Development Goals (SDG) formulated by the United Nations which have been called into existence in 2015 to make this world a better, cleaner and more livable place.
The report, entitled “Islamic Finance and the SDGs: Framing the Opportunity” and released as the first edition of the new “Thought Leadership Series” by the Islamic Finance Council UK (UKIFC) in partnership with Malaysia-based International Shariah Research Academy for Islamic Finance on May 5, is looking into the capabilities of the global Islamic finance sector to of contribute and actively engage in getting closer to reach the SDGs after the virus pandemic will have ended.
As a background, the UN has formulated the SDGs as a playbook to address and eventually overcome a wide range of global economic, social, governance and environmental challenges by 2030. The idea has been adopted by 193 countries, recognising that alleviating poverty, ending environmental damage and address other societal, political and corporate deficiencies in countries across the world would pave the way to the development and implementation of strategies that improve health and education, reduce inequality and spur economic growth, all while tackling climate change and preserving a natural environment.
“The pandemic has caused much suffering worldwide along with the financial and economic hardships that large parts of the world’s population are experiencing,” says Richard de Belder, UKIFC Advisory Board Member.
“However, it is also interesting to see that a debate has started that things cannot go back to how they were before the pandemic,” he adds, suggesting the creation of nothing less than a new financial system based on ethical principles which would “serve society and protect the environment” as a positive way to deal with the disruption caused by the coronavirus pandemic.
“The UKIFC firmly believes that Shariah principles which underpin Islamic finance make the sector well positioned to lead in promoting the SDGs and to achieve global economic and social justice combined with sustainability,” De Belder notes.
To accomplish its ambitious SGD goals, the UN has earmarked an annual $2.5tn financing gap for developing countries which is where the Islamic finance sector comes into play. It has also identified the opportunities for Islamic finance to engage with the SDGs after removing a variety of still existent barriers in Islamic jurisdictions such as a limited understanding of the SDGs, a perceived lack of relevance of the SDGs to their commercial agenda and a limited desire to consult with peers and participate in the SDG debate.
Once this is overcome, the Islamic finance industry, particularly the private sector including Islamic banks, fund companies and other financial institutions in Islamic countries, could play a key role in contributing to achieving the SGDs. As a start, Islamic finance could, in general, satisfy the increasing demand of global investors seeking ethical finance and impact investment opportunities by promoting its ethical investment features and offer a respective innovative portfolio. To that end, the SDGs could easily represent a platform for Islamic finance players to expand their ethical finance offerings, taking into account the important role of the Shariah concept of tayyib, which means “pure” and “with good intentions,” as a route to provide wider solutions for investment with a societal and environmental impact.
Core criteria for such social impact investments — as also outlined by the Islamic Development Bank — are employment generation, affordable housing, affordable basic infrastructure, access to essential services including healthcare, welfare and education, as well as socioeconomic advancement and empowerment of underprivileged people. Likewise, environmental impact factors are the focus on renewable energy, energy efficiency, pollution prevention and control, environmentally sustainable management of natural living resources and land use, as well as sustainable water and wastewater management.
That said, the UKIFC acknowledges that Islamic finance institutions, by and large, are just at an early stage of engagement with the SDGs. Steps to be taken were therefore an improvement in understanding of how any given organization can effectively engage with the SDGs — which is, among other reasons, why the “Thought Leadership Series” has been initiated —, as well as the encouragement of Islamic finance institutions to embed SDGs into their business roadmaps and, most of all, identify the commercial opportunities that are associated with it.