Paper Title: Developing Islamic Sustainable and Responsible Investment Criteria: An Overview

Author:        Muhammad Zarunnaim Haji Wahab and Asmadi Mohamed Naim

Publisher:    International Journal of Ethics and Systems, 39(3), 648 – 658. 

This study explores the need for developing socially responsible investment criteria in Islamic finance. There is global attention given to environmental sustainability.

Conventional finance has been active in addressing the need to create reporting regulations as well as instruments and mechanisms to affect allocation of investible capital and pricing in financial contracts and markets.

Islamic finance having seen significant growth and penetration in global markets is also rising to the call for greater vigilance, transparent reporting and mechanisms to affect allocation of investible capital in SRI projects.

Authors argue that on many things, there is compatibility between ESG and Maqasid-e-Shariah. SDGs are also quite resonant with Islamic ethos and philosophy. However, in some cases, there may appear some divergence.

For instance, Islamic principles call for censorship in some respects in order to discourage adult content which may undermine family system and also affect society. Therefore, under th guise of freedom, Islamic principles would not allow pornographic or obscene content just with labelling to signify that it is adult only content.

Likewise, under the rubric of freedom of human rights, Islamic principles would not condone same sex marriages.

However, on other matters, ESG criteria is consistent with Islamic principles as Islamic principles also emphasize on protecting bio-diversity, ecology, resources including environmental resources and avoiding waste. Furthermore, Islamic principles deny any sort of racism and strongly recommend fairness and justice. Islamic principles also emphasize on transparency and accountability.

Hence, it is important to develop Islamic SRI criteria to help Islamic financial institutions improve their reporting in a standardized way. Nonetheless, the commitment to ESG, SDGs and Maqasid-e-Shari’ah should go beyond visible reporting to visible actions. Idea is not just to avoid disruptive commercial risk in the wake of new standards and legislation. Rather, the goal should be to leave a distinctive mark in actually making change in practice and outcomes in a broader and visible way.

The first step towards this direction is to have standardized criteria. CIBAFI Bahrain had launched Sustainability Guide specifically for IFIs sometime back. Authors should have also covered it as well.

It is an important guide which guides IFIs on how to integrate sustainability transformation in their product development and operations in a holistic way. Such guides can help IFIs to kick start sustainability integration in a seamless manner. It is important that such guides are adopted by more and more IFIs across the global which will help in standardization.