The Relationship Between the Sustainable Development Goals and Islamic Finance Prof. Robert G. Eccles Professor, Said Business School, Oxford University Chairman, Arabesque Partners Harvard Law School October 15th, 2016
Responsible Asset Owners UN Principles for Responsible Investment 1500 Signatories 50 countries Representing US$60 trillion [1] [1] goo.gl/jzhjen 2
Responsible Companies The 10 Principles of the UN Global Compact 8000 companies +4000 non-businesses Annual filing of process report [2] [2] goo.gl/w6xn3u 3
Responsible Countries The 17 Sustainable Development Goals (SDG s) On 1 January 2016, the 17 (SDGs) of the 2030 Agenda for Sustainable Development officially came into force. The SDGs build on the success of the Millennium Development Goals (MDGs) and aim to go further to end all forms of poverty. The new Goals are unique in that they are a call for action by all countries, poor, rich and middle-income to promote prosperity while protecting the planet. While the SDGs are not legally binding, governments are expected to take ownership and establish national frameworks for the achievement of the 17 Goals. 4
The 17 Sustainable Development Goals (SDG s) [3] [3] goo.gl/zzwxq0 5
Implementing the SDG s 6
Institutional Investors - Current State of SDG implementation AuM of respondents was US$5.9trillion, ~ 10% of total PRI signatories AuM 56% of respondents say that senior leadership see the Goals as relevant to their whole organization, 44% see the Goals as relevant to their investment team. 62% of respondents believe that acting on the Goals can create opportunities for increased investment returns. 75% of respondents are already taking action on three or more of the Goals. Nearly two thirds of respondents are already working with civil society and policy makers on environmental, social, and governance (ESG) issues relevant to the Goals. 7
SDG s Investors ranking based on each goal s potential to help meet investors investment objective Top 5 Group Medium 7 Group Bottom 5 Group Source: Ivanova, Mila R., and Mountford, Frances J., (2016), Transforming our World through Investment. ShareAction. Table 1. Available via goo.gl/xvt0s5 8
SDG s - Main Barriers for Investors The main barriers to investors focusing on the Goals are lack of data showing the relevance of Goals to investors (cited as a barrier by 66% of respondents), the wide ranging nature of the SDG framework (cited by 57%) and insufficient investee company transparency on ESG issues (cited by 55%). [4] However, sustainability creates value [5] Standardization plays an important role Sources: [4] Ivanova, Mila R., and Mountford, Frances J., (2016), Transforming our World through Investment. ShareAction. Available via goo.gl/xvt0s5 [5] G Clark, A Feiner & M Viehs, From the stockholder to the stakeholder, 2015, Available via goo.gl/g1dngy 9
Islamic Finance Link between IF and SDG s? Principles of Islamic Finance link to Maqasid Al Shariah Wealth Offspring Faith Shariah Law Intellect Lives The ultimate objective of Shariah Law is to protect the wellbeing of people, which lies in the safeguarding of: their faith (deen) their lives (nafs) their intellect (aql) their offspring (nasl) their wealth (mal) Maqasid Al Shariah promotes social justice. Source: [6] Islamic Development Bank (2015), The role of Islamic Finance in Achieving Sustainable Development Goals. Available via goo.gl/qubeif 10
Islamic Finance and ESG Common Approaches? Non-financial Factors Avoidance of Debt / Leverage Positive Lists / Preferred Inclusion Engagement Negative Lists / Exclusions Zakat / Distribution to the needy Proxy Voting Best in Class Instruments linked to real assets Source: IdealRatings (2016). ESG and Islamic Finance. Company Presentation based upon Funds@Work AG (2013). Towards a more sustainable Finance System. 11
Islamic Development Bank IF s main contribution to the SDGs Source: Islamic Development Bank (2015), The role of Islamic Finance in Achieving Sustainable Development Goals. Available via goo.gl/qubeif 12
Sukuk (Islamic Bond) Innovative Financial Instruments Two recent examples of Sukuks Education Sukuk: Khazanah Nasional Bhd's RM100 million seven-year sustainable and responsible investment Sukuk was fully subscribed and it was priced at 4.3% p.a. Inaugural issuance proceeds will be used to fund schools under the Yayasan AMIR Trust School Programme. [7] Vaccine Sukuks: International Finance Facility for Immunization (IFFIm) issued two Sukuks raising US$700 mn on orders of well over US$1 bn in less than one year to finance child immunization. This high level of demand from both traditional Sukuk investors and conventional investors, including those with a socially responsible investment focus, proves the convergence of Islamic finance and conventional sustainable investing is very possible. [8] Sources: [7] Daily Express (2015), Khazanah's RM100m seven-year sustainable Sukuk priced at 4.3pc. Available via goo.gl/f8fojj [8] World Bank (2015). Vaccine Sukuks: Islamic securities deliver economic and social returns. Available via goo.gl/x7kek1 13
Thank You! Prof. Robert G. Eccles Professor, Said Business School, Oxford University Chairman, Arabesque Partners robert.eccles@arabesque.com