This report is the last part of a four-part thought leadership series delivered by the International Shari’ah Research Academy for Islamic Finance (ISRA) in partnership with the Islamic Finance Council UK (UKIFC). The series is intended to inspire IFIs to embrace the SDGs and demonstrate to the world that consideration for people, planet and purpose can coexist with profit and form the heart of the next generation of Islamic financial products. This part will mainly document the current level of knowledge, understanding and perspectives on the SDGs amongst key IF industry stakeholders, primarily Shariah scholars.
The concept of sustainable development was articulated for the first time in the Brundtland Report, also called “Our Common Future”, published in 1987 by the World Commission on Environment and Development (WCED) and supported by the UN. According to the Report, sustainable development is defined as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.
In 2015 the UN introduced the new global development agenda for 2015 through 2030 and adopted a set of seventeen SDGs for the action of the member states. According to UNDP, the SDGs as a global agenda represent a universal framework for comprehensive development. The aim is to plan for a better and sustainable future and address the global challenges faced by people and the planet. Prominent among the goals are eradication of poverty, dealing with climate and environmental degradation, improving human health and education, and a range of other goals across environmental and socio-economic development.
One of the most salient factors challenging the achievement of the SDGs by 2030 is the shortage of financial resources. Several reports and studies stated that around US$5–7 trillion dollars are required every year to achieve the SDGs, and these cannot be obtained from the government or even from donor agencies. In other words, there is a huge gap between the available resources and fund requirements to achieve the SDGs. Thus, the SDGs will have very substantial resource implications across developed and developing countries. For instance, in developing countries alone, the required investment for the SDGs would be approximately US$2.5–3 trillion per year for food security, basic infrastructure (road, water and sanitation, and power stations), health, education, and climate change mitigation. Because of the new development agenda, all possible resources must be mobilized if the world is to succeed in achieving the SDGs.
Our first report, launched in May 2020, provided an introduction to the SDGs within the context of Islamic finance. It explored the role the Islamic finance industry can play in addressing the SDG funding gap and attempted to better understand the commercial opportunities the SDGs present for the sector. 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) and Principles for Sustainable Insurance) that support financial institutions seeking to align with the SDGs.
• To achieve SDG targets, IsDB 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 Islamic finance with the Principles for Responsible Investment. Key conclusions included:
• Whilst a small number of organisations are making significant progress, there is a pressing need to raise awareness in Organisation of Islamic Cooperation (OIC) member states, and beyond, about 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 by means of greater engagement with the IF investment community.
The third report of the series, “Islamic Finance and the Principles for Responsible Banking,” was launched in June 2021 and provided an analysis of responsible banking in the Islamic finance sector, assessing the level of engagement with the PRB amongst banks in OIC member states and analysing the approaches used by nine Islamic finance signatories. Key conclusions included:
• Only 3 of the 221 signatories are fully Shariah compliant with a further 6 “window” operations having established and substantial Islamic finance activities. Whilst a comparatively small number of organisations have become PRB signatories, there is a pressing need to raise awareness and drive further action in OIC member states and beyond. PRB was only launched in September 2019 and as momentum builds, it is anticipated that more banks will become signatories of the PRB in the future.
• Although the principles of IF are broadly aligned with the SDGs, only four of the nine institutions selected for review as being either fully Shariah-compliant or a prominent Islamic ‘window’ within a conventional bank publicly promote the use of the SDGs either as a framework for strategy, an impact assessment tool, or to set tailored goals.
• 49 of the 57 OIC member states do not have any PRB signatory organisations. Awareness of the PRB in OIC member states could be increased through working groups, targeted awareness and outreach activities.
The previous reports focused on the industry approach towards achieving the SDGs. This report will provide a detailed analysis of interviews conducted with Shariah scholars to ascertain their views on the SDGs. It will explore the current level of knowledge of Shariah scholars regarding the SDGs and their views on the implementation of the SDGs such as eradicating poverty and hunger and promoting quality education, decent work, economic growth, and climate change.
Whilst the SDGs have a clear development agenda and thus are relevant to the world of Islamic social finance (zakat, sadaqah, waqf, etc.), the focus of this report (like the previous three reports in this series) is on the role of the commercial Islamic banking and finance sector in achieving the SDGs.
