Islamic Finance and Renewable energy
By Stella Cox
There is almost universal global support for renewable energy and a broadly articulated desire to draw power from naturally occurring, inexhaustible sources of supply, rather than from the fossil and nuclear fuel supplies of the past. Given the ethos that underlies Islamic financial practice, the considerations of social impact and responsible governance to which Islamic investors subscribe should encourage others in the socially responsible investment sector to increase their engagement with Shariah-compliant investors and financiers.
Whereas the stewardship embraced by Islamic financial practitioners reflects social impact and governance, it is a financial industry subset that has developed from the emerging markets, many of which have economies driven by traditional energy and fuel revenue. Accordingly, related environmental issues and impact have historically been less of a consideration. This perspective is changing and, interestingly, being driven by client demands, particularly from those clients who are Millennials.
Acting on these changes, there are now examples of Islamic financial market leaders and practitioners seeking to explore and collaborate with other parts of the ethical financial marketplace including:
- RFI Foundation, which engages with asset owners and institutional investors to explore the benefits of the inclusion of the ethical and socially responsible principles of Islamic finance
- Islamic Development Bank and the Co-Chairs of the Intergovernmental Committee of Experts on Sustainable Development Financing, which incorporate input from Islamic financial experts to facilitate an effective, sustainable development financing strategy and the mobilization of alternative resources
- UN Environment Program Finance Initiative (UNEP FI), which included Islamic finance during a Global Roundtable session co-presented by the RFI Foundation
Is it important that such collaborations develop between industry bodies and key influencers and that effective think tanks are established to add process and propose the standards and practices that may be accommodated by the wider marketplace. These collaborations will also encourage the participation of the institutional market, of investors and asset owners, as has been demonstrated by the responsible investment momentum driven by the growth and success of the Principles for Responsible Investment (PRI) during the last ten years.
Stella Cox is an RFI Foundation Trustee and Managing Director of DDCAP Group. This article is excerpted from an article included in Responsible Investment: New thinking for financing renewable energy (edited by Dr. Hatim El Tahir, Director of the Islamic Finance Group at Deloitte).