Published on 07 Mar 2019.
RAM Ratings sees Islamic finance playing a vital role in supporting the implementation of socially responsible investing (SRI, which includes environment, social and governance (ESG) matters) and funding for the United Nations’ Sustainable Development Goals (SDG). “The common philosophies with SRI serve as a bridge for Islamic finance in becoming a mainstream financing source. Thanks to the concerted efforts of market practitioners in Malaysia, Indonesia and other core Islamic finance markets, the global community is slowly but surely realising the real value and benefits of combining Islamic finance with SRI,” said Ruslena Ramli who moderated the RAMification dialogue with industry experts on 28 February 2019 hosted by RAM Ratings.
Daud Vicary (Managing Director, DVA Consulting), Najmuddin Mohd Lutfi (CEO, BIMB Investment), Ashraf Arshad (Financial Sector Specialist, World Bank) and Promod Dass (CEO, RAM Consultancy) – discussed the linkage of SRI in growing Islamic finance prominence among mainstream financial communities. During the event, Promod highlighted that awareness of SRI and/or ESG among local investors and corporates is gaining traction. The first step is a change in mindset vis-à-vis adopting the prescribed values. Daud further emphasised “This game changer will support the sustainability of how future businesses will operate and is also in line with the core objectives of Islamic finance, i.e. Maqasid Al-Shariah (protection of public interest).”
Commercial values play a significant role in determining the behaviour of investors, both institutional and retail. However, proactiveness in ESG beliefs may out-weigh returns in the final decision-making process. On this note, Najmuddin clarified that during the initial launch of BIMB Investment’s first ESG fund - BIMB-Arabesque i Global Dividend Fund 1 – take-up was slow due to lack of awareness on the value proposition of ESG. To date, the fund’s assets under management (AuM) sum up to more than RM600 million. In August 2018, the spotlight was on BIMB Investment when it launched the world’s first ESG sukuk fund. Leveraging Arabesque Asset Management Ltd’s S-Ray programme, this fund adheres to ESG principles and also those of the United Nations Global Compact (UNGC). “The shift in mindset on beliefs over returns is anticipated to set the pace in influencing the flow of global investments,” adds Najmuddin.
In light of the shared principles between SRI/ESG and Islamic finance, greater emphasis should be placed on highlighting their commonalities. The World Bank, a trend setter for green bonds globally, has been collaborating with the Securities Commission of Malaysia and Malaysia International Islamic Financial Centre (MIFC) to facilitate the growth of green sukuk market in Malaysia and to introduce innovative financial instruments to tackle global infrastructure needs. Malaysia saw the issuance of the world’s first green sukuk, i.e. Tadau Energy Sdn Bhd’s RM250 million sukuk in July 2017. Ashraf highlighted, “The World Bank will continue to emphasise the importance of promoting the ESG agenda in the financial sector”.
Ultimately, “The remodelling of Islamic finance to global financial communities (instead of the notion that it mirrors the conventional system) will be the catalyst towards building its linkage for greater inclusiveness” concludes Ruslena.
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