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Islamic finance seen as a real point of convergence between the East and the West

Hasan AlJabri, CEO of SEDCO Capital participated in the Global Ethical Finance Forum which was hosted by the Scottish Government and in cooperation with the UK Islamic Finance Council.

The forum which took place in Edinburgh, Scotland, brought together thought leaders and executives from the ethical finance industry to ‘discuss untapped opportunities and spur convergence and collaboration’. The forum was officially opened by Dr. Zeti Akhtar Aziz, Governor of Bank Negara Malaysia and HRH Emir Muhammad Sanusi II, Emir of Kano.
Under the title “Growing the global ethical finance industry through collaboration and convergence”, AlJabri pointed that although there are many different forms of responsible investments, Environmental, Social and Governance (ESG), Socially Responsible Investing (SRI), and Islamic Finance, they all emerge from concern about the social and environmental consequences of investment practices, and a desire to ensure that investors make a positive contribution to the societies in which they operate to create sustainable economic development.

In response to a question asked at the seminar on the convergences between Socially Responsible Investing (SRI) and Shariah compliant investments, AlJabri responded: “Islamic finance operates under principles in line with the Shariah law, and has a lot in common with ethical finance, since it excludes certain industries such as tobacco and alcohol. There is a clear alignment between these two areas, in terms of their origins, their implementation and their potential contribution to society. This inspired us to create a new concept called “PEI” (Prudent Ethical Investing) where all the Responsible Investments&Environmental, social and governance variables are included adding to it the “prudent” aspect which we derived from our Sharia investing guidelines.

“Investors should see these as complementary and mutually reinforcing investment strategies. With the current situation in global financial markets, all investors are concerned about how to avoid the next Enron, the next bank failure. Islamic Finance offers a practical way of avoiding these risks, requiring companies with excessive leverage to be excluded from the investment universe. The financial industry is gathering momentum towards a transformation that will see greater convergence between conventional banking, ethical finance, Islamic banking and socially responsible investment (SRI).” He added.

SEDCO Capital has introduced ESG to all of the different asset classes it has. It currently has over $850 million invested in Prudent Ethical Investments and plans to roll out more in the near future.

The Responsible Finance report by Reuters suggests that Shariah inspired leverage limitations could benefit conventional stocks. Further, the report points out that by avoiding firms with the biggest debt to equity ratio, investors would support tangible assets, and therefore have ‘real’ economic impact.

SEDCO Capital had signed the United Nations’ Principles for Responsible Investment (UNPRI), becoming the first Saudi company, and first fully Sharia compliant asset manager to do so, which is based on well-established principles and rules that act as filters to funds and investment portfolios based on environmental, social and governance (ESG) principles.

The Global Ethical Finance Forum (GEFF) is gaining a solid reputation as a flagship gathering for the US $59 trillion responsible investment industry. The event featured debate between the largest asset owners in Islamic finance and SRI, discussions around the future of green bonds, the development of common standards and principles for industry, mainstreaming responsible finance, ethical banking and ESG.