Socially Responsible Investing – An Opportunity for Islamic Finance – MIFC Report

19th October 2015

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Report by Malaysia International Financial Centre Report

Islamic Finance and Socially Responsible Investing

Article Overview

1 Islamic Finance and Socially Responsible Investing
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Ethical, equitable, social and sustainable investments are all synonymous to both Islamic finance and SRI. In both instances, investors seek to achieve a strong return on their investments; and similarly, to take into account the social returns and society. Therefore understanding the scope of SRI and Islamic finance are essential in order to match the available opportunities.

Islamic finance is embedded on the principles of fairness, equality and ethics that lead to social well-being. It seeks social justice and economic prosperity of the society and encourages sustainable economic activity.

Islamic finance come from fundamental requirements set by principles of the Islamic law. Socially Responsible Investing (SRI) has a similar rationale. SRI is sometimes referred to as “sustainable”, “socially conscious”, “mission,” “green” or “ethical” investing. In general, socially responsible investors are guided by an ethical or moral code for ESG investments.
Islamic finance could broaden its investor portfolio by connecting these overlapping core values to access the large amount of SRI funds available in global markets. In some markets, it is clear that momentum is being built towards realizing the connectivity of Islamic funds with the global socially responsible investment funds which stands at about USD3.7tln.

In 2014, climate themed bonds were estimated to total approximately USD502.6bln globally (an exponential jump from USD174bln in 2012). Estimates record that nearly USD10tln in cumulative capital investments will be moved towards low carbon energy alone between 2010 and 2020.4 Furthermore, over 1,300 signatories to the UN Principles for Responsible Investment (UN PRI) represent over USD45tln in managed assets (from USD4tln in 2006). In relation to these figure, Islamic finance remains a niche area that can benefit from broadening its horizon to tap into socially conscious investments. This will appeal and attract both Islamic capital as well as a wider global interest. Therefore understanding the scope of SRI is pivotal for Islamic finance practitioners to match the segment opportunity available in the SRI space.