1. ESG - Opportunities for broader relevance
Islamic Finance and Maqasid Al-Shari’ah:
Environmental, Social and Governance (ESG) Issues
Sayd Farook
Global Head Islamic Capital Markets
Thomson Reuters

2. Framing the discussion
• Engine for socio-
economic growth
• Role in addressing
unprecedented level of
global challenges
• Financial crisis impact:
Deep social crises.
• Impact on poverty
• 46 million more
people to live on <
$1.25/day,
• 53 million more on
< $2/day. (World
Bank Group)
Responsibility?
Least socially
responsible amongst
nine major global
industries.*
FINANCIAL
INSTITUTIONS… Role & Impact Performance
* 2009 BSR (Business for Social Responsibility)/ GlobeScan State of Sustainable Business Poll
Gap

3. Foundational Precepts:
Contemporary Business
“There is only one valid definition of business purpose: to create a customer…It
is the customer who determines what a business is...The customer is the
foundation of a business and keeps it in existence. He alone gives
employment.“
“there is one and only one social responsibility of
business—to use its resources and engage in activities
designed to increase its profits so long as it stays within
the rules of the game, which is to say, engages in open
and free competition without deception or fraud.”
“The great object of the political economy of every country is to
increase the riches and power of that country.”
Serving customers Maximizing shareholder value Enlightened self-interest

4. Foundational drivers & social responsibility?
Foundational Precepts:
Contemporary Business
Serving customers Maximizing shareholder value Enlightened self-interest

5. Foundational Precepts of Islam
(God consciousness)
Human beings as
vicegerents on Earth
‘Taqwa-centricity’
Accountability
“So fear Allah. For it is God that teaches you.
And Allah is well.”
2.228
“Allah takes careful account of everything”
–Ali, A.Y. (1989) The Holy Qur’an: Text, Translation and
Commentary, Surat Al Nisa (Women) verse 86.
“Then anyone who has done an atom’s weight
of good shall see it and anyone who has done
an atom’s weight of evil, shall see it.”
–Ibid, Surat Al Zalzala (The Earthquake) verse 7-8)

6. Foundational Precepts of Islam
Primary Responsibilities:
Objective of Islamic Laws
Educate an Individual
in ‘Taqwa
Establish Justice
Education “seeks to make each individual a
trustworthy agent just so as to strive to
realize these values which benefit himself
and the community”
Kamali, M.H. (1989A) Sources, Nature and Objectives of
Shari’ah The Islamic Quarterly, pp 215-235 at p 216.
“The Believers, men and women…enjoin
what is just (accepted), and forbid what is
unjust (rejected)…”
Ali, Surat Tawba (The Repentance), verse 71.

7. Foundational Precepts of Islam
Educate an Individual
in ‘Taqwa
Establish Justice
(God consciousness)
Human beings as vicegerents on Earth
Primary Responsibilities: Objective of
Islamic Laws
‘Taqwa-centricity’
Accountability
Ability-BasedFocus
Individualvs.Institutional
Responsibility

8. Social Responsibility Mandate for IFIs
IFI’s Special Obligation
– Community obligation to avoid usury
– Financial intermediary with special allocation
powers
– Highly visible institutions that are role
models
Individual
Responsibility
IFI
Responsibility
Representative of
individuals
–Investors
–Clients
–Employees
–Other stakeholders
..
‘Taqwa-centricity’ Accountability Educate Establish Justice

9. Overarching Accountability to Allah (SWT)
Investors
Shareholders
Investment Account
Holders
Contractual parties
Clients
(Current A/C holders, Lessees,
Partners, Vendors and Buyers)
Employees and
contractors
Other contractual
parties
Society
(Poor, youth, elders, marginalised,
discriminated against, environment)
Accountability framework of an IFI

10. AAOIFI Governance Standard No 7
A framework for IFI Social Responsibility?
IFI’s Operational Manifestation
Disclosure&GovernanceasaMeansofAccountability
Mandatory
• Screening of investments
• Earnings prohibited by Shari’a
• Responsible dealings with clients
• Employees
• Zakah
Operations
(employees, vendors, etc)
Financial
mobilization
Religious
(Form & Substance in all
operations)
Recommended
• Qard Hasan
• Environmental considerations
• Screening clients and contractors (add. criteria)
• Industry-wise investment quotas
• Social impact based investment quotas
• Par excellence customer service
• Micro/ small sized biz social savings and investments
• Employee welfare (extension)
• Charitable activities
Social Responsibilities

11. IFI Practices
 2009 Social Responsibility Survey of Islamic Financial Institutions:
 Yet to move from the negative screening framework which is primarily based
on avoidance (first generation) to the positive action framework which is based
on both avoidance and engagement in socially responsible activities (second
generation.)

12. Conflicting Ideologues within Islamic
Finance
• Some say - IF responsibility is only structural
compliance – literalists have taken over the
conversation
• Possible reasons:
– historical and political influence
– the old guard of professionals
– differing Shari’a opinions
• But, there are other Point of views

13. Current Global Practices
• Sophistication of the existing CSR processes,
benchmarking tools, and operations
• Wal-Mart - Sustainable Product Index: measure sustainability
of products for first time. Survey 100,000+ suppliers around four
areas: energy and climate, material efficiency, natural resources, and
people and community. Ability-based initiative.
• Socially Responsible Investing: In the U.S., more than 3 trillion in
total assets under management based on three core socially responsible
investing strategies—screening, shareholder advocacy, and community investing
• Social Entrepreneurship: Kiva and Grameen. more than 30,000 such
social enterprises, together representing some $40 billion in revenue
•Social Investment Forum’s 2007 Report on Socially Responsible Investing Trends
•B Lab, a nonprofit organization that certifies these purpose-driven companies

14. 0
10,000
20,000
30,000
40,000
2007 2008 2009 2010 2011 2012 2013
Growth In Ethical Awareness
Responsible finance has witnessed an exponential growth trend that has accelerated since the
financial crisis and is poised to continue as people demand finance in line with their values
UN Principles of Responsible
Investing
Organizing around basic principles
needed to make ESG a part of the
investment process and expand
disclosure of progress towards the
sustainability goals with stakeholders
The value of simplicity
Sustainability-Screened Assets
OECD countries account for over 95%
of the reported sustainability-focused
assets & continue to experience rapid
growth while accounting for a large
share of global wealth
OECD leads today’s growth
Islamic Finance Assets
The rise in prominence of Islamic
finance overwhelmingly from emerging
markets show the potential for broader
ethical finance & investment growth in
these newer markets.
EM the key to future growth
Source: UNPRI, USSIF, EUROSIF, Thomson Reuters, UKIFS, RFI estimates
+170%
+240%
+158%
US$ bn
5

15. 78%
23%
7%
Global wealth
Estimated in 2013 at
US$148tn,
78% of which not managed
using well-defined ethical
criteria
ESG screened
More than $10tn of
assets (7% of global
total) subject to ESG
screening, dominated by
assets in OECD
countries
1.1%
Represents 1.1% of global
assets and a major source of
future growth for responsible
finance
Islamic Finance
Incorporating process
and disclosure on ESG
criteria for 23% of
global assets
UNPRI
The growth of socially responsible finance to date has been
led by investors in OECD countries. The growth of Islamic
finance is driven by its expansive presence across emerging
markets which will contribute heavily to future growth of
responsible finance more broadly.
Expanding
the Universe
Responsible Finance Universe

16. Multiple approaches to Responsible Finance
THE OPPORTUNITY
There is a growing recognition that the link between risk and reward was severed in the years leading up to
the financial crisis and needed to be rebuilt with ethics and morals at its heart. The work being done in
Islamic finance and other areas of ‘responsible finance’ are far more in harmony than they are in
disagreement. Bridging the gap in understanding and communication between conventional ESG asset
managers and Islamic asset owners and financial institutions can provide benefits to both sectors.
1
DIVERSE STRENGTHS
Unlike most of responsible finance which primarily operates within investment management, Islamic finance
(a form of financial intermediation in which funds are raised and applied using asset-based methods or
partnerships in accordance with Islamic law) takes a more expansive view of its place within the financial
sector. Both have unique strengths and both can benefit from the other’s strengths.
2
NO COMMON LANGUAGE
Despite growth across the different areas within responsible finance, there does not necessarily exist a
common language for how to communicate the common values or to institute common standards, develop
policies for investments and cooperate in finding investment opportunities, which could give the responsible
finance industry more leverage to influence policy and decision-making.
3
NEED FOR POLICY PERSPECTIVE TO SHAPE GLOBAL AGENDA
The responsible finance sectors collectively have insights that could be meaningful and beneficial to the
overall development of the financial services industry and can contribute to inclusive and holistic
development of the financial sector by contributing towards shaping Basel III to IOSCO Principles to IFRS
Standards
4
The financial services industry, which has a disproportionate influence on the development of
economies, needs a unified voice to represent the perspectives of responsible finance to influence the
broader financial system for the betterment of mankind.

17. CONNECT
CONVERGE
CHAMPIONENGAGE
EXPAND
1
2
34
5
Way Forward
1
3
2
4
5
CONNECT the various forms of socially responsible
finance and Islamic finance through dialogue, sharing
best practices and common action plans and resolutions
CONVERGE Consensus-building is based on valuing
the diversity of approaches to achieving responsibly-
driven finance and investment strategies and committing
to moving from dialogue to action. This will entail
developing a minimum set of measurable standards and
facilitating cooperation between those involved with SRI
bonds, Sukūk and other capital market innovations.
CHAMPION the socially responsible finance and
Islamic finance industries together with a unified voice
and become the leading and most authoritative voice for
proposing the inclusion of Islamic finance and
responsible investment into global regulatory issues.
ENGAGE asset owners and their institutional
representatives together with individuals who can provide
additional resources to appropriately assess all types of
responsible financial instruments and institutions
(including Islamic instruments and institutions) as
legitimate and viable options for their financial activities.
EXPAND the RFI’s capability and reach through the
sharing of skills and provision of training services within
individual responsible finance sectors so that people
working in each sector can understand the other
responsible finance sectors and identify opportunities to
expand its footprint across the globe.

18. RFI’s strategic objectives are designed to connect responsible and Islamic finance and expand their
reach & impact globally towards integration and vocal participation within the global economy
Vision
To integrate principles and solutions of the responsible
financial sectors, including the ethical and socially
responsible principles of Islamic finance, into the global
economic system to support broad based economic
development
Mission
To connect the socially responsible and Islamic financial
sectors, to promote their convergence towards common
standards and representation and to enable their
activities to serve as a catalyst for greater economic
development for the benefit of all.
Strategic Objectives
•To facilitate connectivity and understanding between Islamic finance and other socially responsible finance sectors.
•To facilitate the convergence of (non-Islamic) socially responsible finance and Islamic finance supported by data and with
specific policy recommendations for implementation of common standards and facilitating connectivity between key
stakeholders
•To be a powerful voice representing the perspectives and solutions of its members within the responsible financial
services industry to senior government bodies, policy makers, and institutional investors. RFI acts as an advocate for
regulatory and financial policies that will remove barriers that inhibit the development of responsible finance.
•To enhance engagement with institutional investors such as pension funds and sovereign wealth funds in order for them
to appropriately assess all types of responsible financial instruments and institutions (including Islamic instruments and
institutions) as a legitimate investable universe
•To expand adoption of the various forms of responsible finance by enhancing the human capital capacity that
understands the different approaches to responsible finance and is committed to expanding its footprint across the globe.
Responsible Finance Institute - rf-institute.org
9

19. Launch of the Responsible Finance Institute
 The Responsible Finance Institute will be
launched on the 31st of August 2015,
 Alongside the inaugural Global Ethical
Finance Forum (GEFF), Edinburgh, Scotland,
UK on the 1-2 September 2015,
 Hosted by the Government of Scotland