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null The ESG potential of Islamic finance


The ESG potential of Islamic finance

16 Jun 2022 | Thursday Source: Thomson Reuters

It is fair to say that the internationally agreed shift towards environmental, social, and governance (ESG) issues is showing signs of strain resulting from an uneven global approach, the war in Ukraine, and increasing economic challenges.

Towards the end of 2021 the sense was that there was a defined direction of travel for all things ESG coming out of the COP26 meeting in Glasgow. The International Sustainability Standards Board had put forward its thinking on disclosure and reporting requirements; and the world, financial services firms in particular, was gearing up to meet the emerging expectations and requirements with the road to “net zero” looking relatively clear.

Since then, the world has shifted. The war in Ukraine, the resulting sanctions imposed on Russia, and the associated impact on the world’s energy supplies, increasing economic and supply chain issues, together with fines being imposed for greenwashing, and jurisdictions taking potentially distinctly different approaches to climate risk legislation have all increased the challenges around ESG.

One possible strategic solution for firms seeking to build their sustainability and ESG approach is to consider the potential offered by Islamic finance. Not every financial services firm is going to choose to consider Islamic finance as a strategic opportunity, of course, but it is an area with substantial global potential both in terms of growth and in its “green” credentials. It is also one in which risk and compliance functions would be required to play a critical role.

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