Wednesday, July 18, 2012

Sustainable Islamic finance

A fund was announced recently that will invest in forestry and agricultural projects, and which will be Shari'ah-compliant.  One of the interesting points raised by the fund manager is that "Sustainability has been a challenging conversation in the Gulf, as it was regarded as a competing asset class. But energy security cannot be built on one source alone".  

This led Bernardo Vizcaino, the reporter writing the article for Reuters to explain: "One reason for the lack of close ties between the Islamic and ethical investor communities is geographical: Islamic investors have strong roots in the Middle East and southeast Asia, while the ethical investment industry has its strongholds in North America and Europe."

Because of the limited offering of sustainability-related investment opportunities, a fund focusing on this area, that is Shari'ah-compliant as well, should have a natural home, but Islamic finance has so far gravitated more towards other alternative investments like capital-protected notes, and investments in real estate. 

Back in May, I wrote in my newsletter that Islamic finance should incorporate 'positive screens' focusing on the environment and poverty alleviation, not because they are good in and of themselves, but because they have strong basis within Islam on their own.  In that newsletter, I quoted Olav Kjorven, the Assistant Secretary General for the UN Development Program who, after the launch of the Muslim 7 Year Action Plan on Climate Change: "The role of Islam could be one of the decisive factors tipping the planet towards a sustainable future."

The point of that Action Plan was not that Muslims should embrace environmentalism or work to avert climate change for its own sake, but because it was an important part of the Islamic view that people do not own the earth, but are allowed to use for their benefit, acting as caretakers of the world.  The environmental movement has become influential over the past century and Islamic finance can benefit from this pool of knowledge, while adapting it to have the best combination of authenticity and impact within the Islamic finance industry (and not just as a cut and paste from how it operates in North America and Europe).  

This would provide a new area where Islamic finance can offer both a Shari'ah-compliant financial product (based on avoiding what is prohibited), but also a positive vision for economic development in harmony with the environment, based on the Islamic ethical conception of the relationship between mankind and the earth. 

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