Socially responsible investing: Islamic financial institutions should do more

SRI, a growing force in the international investment industry, is a process that evaluates the social and environmental consequences of investments within the context of rigorous financial analysis. Companies that meet certain standards of corporate social responsibility (CSI) are regarded as morally sound investment opportunities that deliver value to society at large, as well as to shareholders.

Addressing delegates on the second day of the three day forum, at the Al Bustan Rotana Hotel in Dubai, Guler Manisali Darman, principal of GMD Advisors, Turkey, said: "We all know that Islamic finance is an ethical and equitable enterprise, we all know that it's young and growing vigourously, we all know that it is Sharia'h compliant, but in terms of social responsibility we have to admit that more is expected, in addition to the rules."

Darman said that as a result of the corporate scandals that have rocked the international business community in recent years, more businesses have come to realise that, "Responsible behaviour is the lynchpin of corporate credibility and corporate credibility is closely linked with corporate social responsibility.

"Companies have to realise that responsible behaviour is not a cost, it is an investment," said Darman. "There are fields where socially responsible investment can be profitable, for example, healthcare, education and transportation, but a company has to be careful when making investments in these fields, because they affect society as a whole."

Alex Barkawi, managing director of Switzerland-based SAM Indexes, told delegates that the three key criteria of SRI are economic, environmental and social.

Commenting on the economic criteria, Barkawi said: "Corporate governance is a crucial factor for the long-term success of companies. The transparency and accountability of boards are absolutely at the centre of long-term shareholder value and performance. More investors are looking at this criteria before making their investment decision. This is why corporate governance in many concepts of socially responsible investing is integral."

Commenting on the environmental criteria, Barkawi highlighted the example of water in investment decision-making. "Water is becoming an increasingly crucial success factor for companies. The lack of water is driving several industries. Yet very few mainstream investment analysts look at water as a criteria when analysing and assessing a company," he said.

Regarding social criteria, Barkawi cited human capital as an example. "Human capital is a crucial factor for the long-term success of companies and so more investors are starting to look at that issue when analysing companies and deciding where to invest," he said.

Barkawi added that whilst SRI criteria are ethical, they address more than ethical issues. "They are criteria that relate to the long-term performance of companies. More and more investors feel these are crucial to identify well-managed companies that are well positioned for future success."

SRI is viewed by many industry analysts as the key to sustainability, which is attractive to investors. Commenting on the product and business opportunities than arise from the packaging of SRI with Sharia'h principles, Barkawi said: "Companies that are both sustainability leaders and compliant with Sharia'h principles over the last couple of years actually perform better."

Introducing the special session on "Islamic Finance and Socially Responsible Investing", conference chairman Kavilah Chawla, principal with Nur Advisors of the USA, told delegates that Islamic finance has "a moral imperative" to include those at the lower end of the income scale into economic development and globalisation.

Christianna Tsiterou, event director for IIR Middle East, organiser of the International Islamic Finance Forum, said, "SRI has emerged as a key talking point among industry leaders elsewhere in the world. Now, thanks to the International Islamic Finance Forum, it's high on the agenda for industry leaders in this region, too."

The 2006 International Islamic Finance Forum is organised by IIR Middle East, in association with the Saudi Economic & Development Company (SEDCO), Saudi Arabia, and DowJones Indexes.

The Islamic Finance industry has shown solid support for the IIFF, with all levels of sponsorship covered. The companies form a virtual who's who of the Islamic Finance world with heavyweights such as Al Tawfeek securing platinum status, Oasis Group Holdings, Singapore Exchange and Path Solutions taking Gold sponsorship packages and HDG Mansur and Nur Advisors acquiring Silver status. Solidarity is the Takaful sponsor.