RESPONSIBLE FINANCE, ETHICAL & ISLAMIC FINANCE: MEETING THE GLOBAL AGENDA Dr Zeti Aziz With Azleena Idris and Yousuf Sultan IFSB Summit Jakarta 12-14 November 2019
Following severe financial upheavals, global attention has since focused on resilience and sustainability of finance Moving beyond To a more catalytic role Regulatory Supporting growth and regime economic development Sustainability 2
Equal importance is embedded in inherent features of financial intermediation In In-buil ilt Embedded Emb el elements Integration of of fina fi nancial tha that sup upport ethi thical stab abil ility growt gr wth and nd as aspects as aspects de development 3
Scope of the Report Examines contribution of Ethical finance and Islamic finance in five key areas 1 2 4 5 3 Serving and Bringing value Environmental Address Contribution to sustainability supporting the to society ethical aspects financial economy of finance stability 4
Both Ethical finance and Islamic finance had their origins derived from religion aimed at bringing long-lasting benefit to the economy, society and environment Focus is also on the ethical use of monies 5
This paper highlights common and differentiating aspects of Ethical and Islamic finance to contribute towards a better understanding of the forms of finance that brings value to the economy, society and the environment Considers strategies, Hi High ghli lights ts so solu lutio ions and nd approaches and practices offerin ings tha hat ma may y be be that can be offered to adop opted mor more wi widely ly, other forms of finance the hereby accele leratin ing the he and which may be pot potentia ial l for or coo ooperati tion adopted more widely amon ong the he di different for orms of f finance to to achie ieve com ommon goals goal 6
Finance: 1 Serving and Supporting the Economy Origin Finance is a To serve e the Econo onomy • To mobilise and allocate financial resources of means • To drive growth and development to an end finance • Erosion of the link between finance and the It weakened the Finance Finance positive role of economy became an prior to finance on growth • From enabler of growth, it became its own end in itself and development the source of growth Became financial potential for crisis Finance financial • Deviated from long-term value creation in became a instability source of pursuit of short-term returns instability 7
Following the Financial Crisis that had Global Consequences Prompted global Prompted global response consensus Wide-ranging regulatory Returned finance to its basic reforms function: Strengthening of supervisory To add value to the economy frameworks Enhance financial crisis resolution capability Greater recognition of the forms of finance that are well anchored to the economy 8
Ethical finance and bringing value to the economy Inves estment st strateg egies es Encourag ages es compa pani nies es to tha hat maximise se bo both participa pate e in gi giving ng back fina nancial re returns s and nd to societ ety and d do doing goo ood to societ ety env nvironm nment Sustainability Ethical emphasised finance: • Pr Protec ects s long-ter erm 3 fundamental • Pr Protec ects s econo nomy int nter eres ests features Avoid idance from om dist stor ortions ons • Adop opting ng ESG Long-ter Lo erm of f hi high-ris isk, , • Enhan hances s ef effic ficien ent fram amework, focus uses s orien entation on spec specula lativ tive alloc ocation on of on env nviron onmental al, reso sour urces activ tiviti ities social al and d go gover erna nanc nce e cons nsider deration ons 9
Bringing value to the economy is explicit in Islamic finance Must be supported Provided if it Clear and by genuine activities generates real transparent rights of Islam slamic ic finance that can generate economic value parties involved legitimate returns Central l te tenets Rein inforces the link k be betw tween finance and nd the he econ onomy A form of finance that Explicitly aims to intermediate and contribute to is “value adding” add value to economic activity 10
Islamic finance is based on profit sharing Facilitates risk control and risk Risk management sharing Balanced growth Inclusive Governance At least 6 key features, including Preserves rights and requirement to responsibilities of those conduct due involved in contract diligence Less prone to Discourages Disclosure and disruptions excesses transparency Sustainability Duty to preserve for future generations • Inn nnovatio ions are e scree eened to to ens nsure e they ey br brin ing valu lue e to to soc ocie iety 11
Growth of sustainable and responsible investment (SRI) strategies 2016-2018 12
Funds Guided by ESG Considerations UN PRI Catalyst for growth 1,750 signatories Development of capital markets indexes 50 countries Dow Jones Sustainable Markets (DJSM) USD70 trillion AUM Issuances of ESG-related bonds (2006: USD4 trillion) 13
Development of FTSE4Good Index • Specific performance indicators assessed against ESG criteria • Applies negative screen to exclude companies that may result in harm (e.g. tobacco, nuclear power, non-renewable energy and weapons industry) 14
Change the World List “Doing well by doing good” • Addressing major societal problems • Reduce damage to the environment • Strengthening communities • Serving the underserved to improve their lives Source: Fortune Magazine 15
16
Top Islamic Market Ecosystem 2017 17
Global Islamic finance developments Islam slamic ic finance ass ssets gr grow owth Com ompositi ition of f Isl slam amic ic finan ancial ial ass ssets ts (20 2018) 18
Islamic banking growth Sukuk trend (2003-2018) (2008-2018F) 19
Islamic indexes Source: World Bank Islamic Finance Bulletin Feb 2019 20
2 Finance and Bringing Value to Society SOCIALLY RESPONSIBLE INVESTING (SRI) ISLAMIC FINANCE Originated from the West in ORIGINS Originated from the Middle the 18 th century from faith- East and Asia since the 7 th based investing (i.e. to not century participate in “sinful” activities) Areas of commonality in bringing value to society 1. Both focus at serving humanity and uplifting social well-being 2. Both focus on inclusion in securing economic prospects of every segment of society 3. Both avoid investments that are harmful to society However societal aspects in financial practices tend to be less clearly defined compared to the environmental and economic aspects 21
Ethical Finance: Bringing Value to Society Creating sustainable and meaningful value to society • Aligning financial practices towards purposes that include social aspects ‒ Internal l valu value dr driv ivers • Achieving social How social issues are being addressed to good while optimise positive impact on society, economy, • Showing support for its generating well-being and development employees • financial returns Contributing back to the community • Operating in a healthy and safe condition • Provision of specific goods or services aimed Social good • Consider the entire supply at benefitting society chain • Performing corporate social • A behavioural outcome to achieve desired responsibility projects results Doing social • Address social and ‒ Inclusion: dealing with the underserved good governance issues ‒ Economic empowerment ‒ Social initiatives 22
Addressing specific social problems Capital is directed to underserved individuals or communities Businesses with a clear social purpose and addressing wider societal concerns Provid ovidin ing so social al goo goods Doin oing soc social ial goo good • • Providing social goods (i.e. clean air, clean Denounce sinful industries (i.e. those that may water, improving healthcare and sanitation) bring harm to society) Weapons Gaming Alcohol Improving Clean Improving Clean healthcare sanitation water air Greater econ onomic emp mpowerment t and nd inc nclu lusio ion To o tak take into account the he imp mpac act of f clim imate chang hange on n com ommunit itie ies Mak akin ing finance tran anspar arent t and nd easy to to unde understan and 23
Islamic finance and bringing Value to Society Advoc ocates soc socia ial l Stimulates es economic act ctivi vity y and nd trust, entrep epren eneursh ship p whi hile e coop ooperatio ion and nd add ddres essi sing g po pover erty y and nd Social responsibility so solid lidarity ine nequality y activities to assist individuals or Prom omotes Requ quires es balanc nce societies to enhance comprehensive bet etwee een n indi dividua ual their living and hum human an righ ghts s and d right ghts of society and nd st state develop de opment environmental conditions Doin ing good ood is enc ncou ouraged. . Does oes no not t Promotes s sub ubscri cribe e to to encr ncroa oach chmen ent t on n fair airness ss anyone’s proprietary rights ts 24
Recommend
More recommend
