Responsible Finance
Environmental Impact in Islamic Finance

By Tawfique Al-Mubarak and Blake Goud

Summary

Several research studies have shown that integration of environmental, social and corporate governance (ESG) in businesses is not just profitable, but it is vital for protecting companies’ social license to operate and ensure their financial sustainability over the long-term. Despite the progress of responsible finance across global markets, its presence in the Islamic finance industry has not developed as rapidly.

This report captures the current state of practice of Islamic finance around environmental & social issues and discusses key opportunities for Islamic finance to shift its values-based orientation towards a greater focus on environmental and social impact. In addition to the primary data we gathered from Islamic financial institutions, this report includes a comprehensive overview of some key recent developments in responsible finance practices from the Muslim world and by major Islamic financial institutions.

The report includes the findings of a survey conducted by the RFI Foundation where we asked 32 institutions operating in the Islamic financial industry about their practices and perceptions relating to environmental and social issues. The survey results are incorporated into some recommendations and conclusions including:

  • Development well-structured strategies and enhanced policies for environmental and social issues within Islamic financial institutions including incentive programs tied to social and environmental outcomes;

  • Greater consideration of how awqaf (perpetual endowments) can be mobilized in support of sustainable infrastructure, education, healthcare, food security, renewable energy, and water management, among others

  • Training employees and management in Islamic financial institutions to enhance their focus on environmental and social issues in their business decision-making process, including a more proactive role for Shari‘ah scholars on sustainable business practices.

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