Islamic Finance and Sustainable Development: A Natural Alignment

Many Islamic banks have always emphasised the ethical aspects of sharia-compliant finance, and with the rise of ethical and sustainable banking, there is now an opportunity to align Islamic finance with the UN Sustainable Development Goals (SDGs).

The convergence of shared standards could see sustainably responsible impact investing in environmental, social, and governance (ESG) areas across Islamic finance sectors. This could attract ethically-minded customers of all faiths and encourage engagement.

Islamic finance’s core principles discourage investing in activities that are deemed to be harmful to society, such as activities that destroy elements of the environment and adversely distort the balance of an ecosystem.

A recent survey of four Islamic banks’ retail customers commissioned by the Islamic Finance Council UK found that 90% of respondents said it was important that their bank provided products that aligned with the SDGs. Moreover, 87% of respondents said they would be willing to pay a premium for UN SDG-aligned products, with a median price premium of 4.4%.

Interestingly, the survey found that the global South was more willing to pay extra for SDG-aligned products than the North, and respondents from the global South were more familiar with impact investing, while those from the North were more familiar with ethical finance, net zero, green lending, and sustainable investing.

The survey also found that social media was the most popular source of information for Islamic finance, with Facebook being the most popular platform in the global South and LinkedIn in the North.

In conclusion, there is a natural alignment between sharia principles and ethical and sustainable banking frameworks, which could enable Islamic finance to support the UN SDGs while attracting ethically-minded customers of all faiths.

Muslim News Online

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