This report is the third in a four-part thought leadership series delivered by the Islamic Finance Council UK (UKIFC) in partnership with the International Shari’ah Research Academy for Islamic Finance (ISRA) and the Global Ethical Finance Initiative (GEFI). The series is intended to inspire Islamic finance institutions (IFI) to embrace the SDGs and demonstrate to the world that consideration for people, planet and purpose can sit alongside profit and form the heart of the next generation of Islamic financial products.
The UKIFC is committed to supporting the Islamic finance (IF) sector’s engagement with the SDGs and has launched a Global Islamic Finance & UN SDGs Taskforce. The UKIFC has unique experience and skills to help organisations through capacity building, business case development, reporting and impact measurement (see Appendix 1 for more details).
The first report of the series, “Islamic Finance and the SDGs: Framing the Opportunity,” was published in May 2020 and provided an introduction to the SDGs within the context of IF. Key conclusions included:
• There has been limited participation from the IF sector in leading UN initiatives (such as Principles for Responsible Investment (PRI), Principles for Responsible Banking (PRB or the Principles) and Principles for Sustainable Insurance) that support financial institutions seeking to align with the SDGs.
• To achieve SDG targets, Islamic Development Bank Member Countries will need annual funding of between US$700 billion and US$1 trillion, which represents around 40% of the total global SDG financing gap.
• Commercial opportunities for the IF sector include tapping into emerging global liquidity pools seeking SDG-aligned products and increasing tactical alignment with development bank funders.
• Alignment with the SDGs supports the tayyib (wholesome) concept, which contends that the focus of IF products and services should be on the evaluation of wider societal impact rather than an overly legalistic analysis of Shariah compliance.
• With assets expected to reach US$3.8 trillion in 2022, through its adeptness at innovative financial structuring, IF is particularly well placed to create innovative instruments that will drive capital towards the SDGs.
The second report of the series, “Islamic Finance and the Principles for Responsible Investment,” was published in March 2021 and provided an overview of the engagement of IF with the PRI. Key conclusions included:
• Whilst a small number of organisations are making significant progress, there is a pressing need to raise awareness in OIC member states and beyond of responsible investing and the ‘triple bottom line’ benefits to be achieved by integrating Shariah compliance with ESG strategies.
• With OIC countries amongst those in greatest need of SDG investment, more work must be done to raise awareness and inspire practical action when it comes to IFIs and the SDGs.
• Only 12 of the 57 OIC member states contained organisations which were PRI signatories. Despite the OIC member states having a collective population of over 1.82 billion (24% of the total world population), only 1% of the 3,575 PRI worldwide signatories are based within them.
• Despite the natural synergy between IF and the SDGs, less than half of the PRI signatory IFIs reviewed mention the SDGs in detail on their websites and associated documents.
• Analysis of 12 PRI signatories highlighted that even amongst those IFIs engaged in responsible investing there is a lack of (a) consistency when it comes to taxonomy and (b) a generally agreed approach to measurement and reporting.
• There is an opportunity for PRI signatories to collaborate in developing a clear and consistent approach in these areas that can help position Shariah-compliant ESG engagement as a beacon of responsible investment.
• There is also an opportunity for the PRI to enhance its activities through greater engagement with the IF investment community.
This report uses the PRB to underpin an analysis of IFIs engaged in responsible banking. The final report in the series will present views on the SDGs from leading global Shariah scholars.
