The flagship event of 2021, the United Nations Climate Change Conference (COP26), hosted in Glasgow in the UK, ended recently. It was the 26th climate change conference that attracted political and business leaders representing 190 countries from around the world to discuss and craft strategies on how we can achieve the goals of the Paris Agreement 1 and the UN Framework to help in the restoration and longevity of the ecosystem that we have been blessed with on earth. While the conference concluded successfully, the feedback on its achievements and agreements remains gloomy. One example is the agreement on limiting global warming to 1.5°C, while a recent United Nations Environmental Programme report stated that nations are on track for a global temperature rise of 2.7°C. Furthermore, in order to achieve the goal of 1.5°C, nations will have to halve annual greenhouse gas emission in the next eight years — something that looks relatively impossible to achieve.
Climate change is just one of the 17 UN Sustainable Development Goals (SDGs), an important initiative launched by the UN in 2015 to transform the world. The 17 goals are divided into 169 specific targets, encompassing the social, economic and environmental elements. Each of the SDGs has its own importance and failing to achieve them will have a detrimental impact on society and the world we live in. Since the introduction of the SDGs, the world in general has paid more attention to the underlying goals and have taken steps to assist in the achievement of the underlying goals. Additionally, with the devastating impact of COVID-19 on the people and institutions in general, achieving the SDGs has become more important than ever. These goals and aspirations that have been translated into the SDGs are fully in line with the objectives of Islamic law (Maqasid Shariah).
The comprehensive framework for the implementation of the SDGs emphasizes the partnerships between multiple stakeholders including those with surplus funds and those who are need of funds. The global Islamic banking and finance industry is no different — in fact the goals that are promoted through the SDGs have their foundations in Islamic law (Shariah) — adherence to which is the prerequisite for any Islamic financial transaction. Additionally, in my humble view, when we discuss the SDGs in the context of Shariah — the emphasis and the accountability on the elements are next to none. These guidelines around sustainability within Shariah were introduced 1,400 years ago in the Holy Quran; when we discuss the environment, it says: “It is He (Allah the Almighty) who has appointed you vicegerent on the earth…” (Quran 6:165). It means that we, as humanity, are entrusted by way of our role as the trustee and custodian of this planet, including all of its natural and economic resources. When we look at the directives on ending poverty — the Holy Quran states: “And you do not encourage one another to feed the poor” (Quran 89:18). On anti-corruption, it states: “…And do not desire corruption in the land. Indeed, God does not like corruptors” (Quran 28:77) and “…And do not commit abuse on the earth, spreading corruption” (Quran 2:60). The concept of Zakah (compulsory charity) is to alleviate poverty and to ensure that society is balanced. We will be held accountable if our neighbors go to bed hungry as well as for any extravagance and if the natural resources are wasted. These are only a few examples but the rulings on quality education, equality and reducing inequalities, clean water and protecting life on land and water are plenty.
Additionally, the guidelines provided by the divine rulings are far more comprehensive than the SDGs. Also, when it comes to accountability, the difference between divine rulings and conventional guidelines like the SDGs is that the latter are man-made while the former are from the Creator, who will hold mankind accountable for their actions during their lifetime and penalized for not adhering to them in the hereafter.
Having said this, the SDGs are an excellent starting point for us to achieve the objectives of Shariah, to quantify and place targets around achieving the objectives that are beneficial for all.
The global Islamic banking and finance industry is fully supporting the SDGs and, in this regard, various institutions that are part of the Islamic economics, banking and finance industry have introduced measures and initiatives that help in the achievement of these goals. Multilateral institutions like the IsDB are fully committed to the SDGs; the IsDB has launched multiple initiatives in line with the need of its member countries. This includes its inaugural green Sukuk in 2019 raising EUR1 billion (US$238.95 million) for sustainable projects in its member countries and a US$2.5 billion sustainability Sukuk issuance in 2021 with proceeds to be allocated to finance/refinance green and social development goals in line with the IsDB’s sustainability framework.
Financial institutions have tailored their strategies to promote the SDGs and sustainable developments — this include banks that have placed targets in financing projects that are socially responsible and are undertaking measures to protect and safeguard the natural resources. This includes financing projects that promote healthcare, job creation, education, renewables, etc. Additionally, investors are more conscious of the factors impacting sustainable development and some would like to invest in line with their values. As such, investors have demanded their investment to be environmental, social and governance (ESG)-compliant in addition to being Shariah compliant — thereby moving away from being just Halal (lawful) to Tayyib (pure/preferred). If we are to consider stock market investment, in the past investors would seek stocks to be Shariah compliant in line with the underline methodology; however, lately there has been far more focus on adding an additional layer in making sure that the stocks are also ESG-compliant and contribute positively to society at large — moving also the Shariah compliant screening industry from just negative screening2 to positive screening 3. Although we need to move from being just Shari ah compliant to achieving the objectives of Shariah, however, investor appetite and wider market acceptability are important for this industry to grow — because after all if the viability is not there the best products will just sit on the shelves and collect dust. Shariah scholars have also shown a keen interest in this and have extended their support to make available different types of portfolios (just Shariah compliant or SDGs-compliant) so investors have a choice to invest in line with their values and to make a difference (impact-based investments).
The regulators and the standard-setting bodies within the Islamic finance industry are also mindful of the industry developments that are happening in the area and are supporting its growth by issuing guidelines and rulings in this regard. In particular, AAOIFI has issued a very comprehensive standard titled ‘Corporate Social Responsibility (CSR), Conduct and Disclosure for Islamic Financial Institutions’ in 2009. The standard aims to provide both mandatory and recommended standards to implement CSR in all aspects of an Islamic financial institution’s activities and provide guidance on the disclosure of CSR information to the Islamic financial institution’s stakeholders. AAOIFI is also mindful that there have been a lot of developments in the sector since the issuance of this standard, and as a result the AAOIFI Governance and Ethics Board is currently working on developing and issued a standard on sustainable financing, which is expected to be issued in 2022.
While the SDGs are important to achieve the long-term sustainability of society and mankind at large, it is equally important to ensure that there is a fair and balanced treatment among the nations. The developed nations, which to date happen to be responsible for the highest emissions globally (G20 countries in particular), should play an active role in reducing their emissions and positively contribute to the environment rather than placing additional pressure on the developing countries (where the means for income may be limited) to lower their emissions. For example: G20 nations are responsible for 80% of global emissions and if they reduce it by 55%, the targets put forward by the COP26 and Paris Agreement can be achieved. Similarly, the capitalist divide between the rich and the poor, where 20% of the people control 80% of global wealth, is the widest in developed economies. There is a need for a better model of wealth distribution. In particular, there should be the adoption of a system that promotes socioeconomic justice and the well-being of all through integrated moral values; elimination of poverty; social justice and equality, as well as risk-sharing.
As per the organization’s policy, the views expressed here are that of the author and do not necessarily reflect the views of the organization.
Dr Rizwan Malik is the senior manager of standards implementation and strategic development at AAOIFI.