Two of the unintended consequences of the COVID-19 pandemic have been the acceleration toward digitization in financial services and a redoubling of initiatives toward sustainable investment.
Sustainable finance is the practice of integrating environmental, social and governance (ESG) metrics into financial services to bring about sustainable and impactful development outcomes.
These include meeting the UN Sustainable Development Goals (SDGs) Agenda by 2030 to eradicate poverty, protect the environment and improve the lives of everyone; inculcating socially responsible investment; fostering social and impact investment and its independent measurement; and mitigating and adapting to the adverse effects of climate change to transition to a low-carbon economy and net-zero emissions as per the Paris Climate Agreement to build climate-resilient societies, cities and economies.
The Islamic Corporation for the Insurance of Investments and Export Credit (ICIEC), the insurance arm of the IsDB Group, is unique in that it is the only multilateral export credit and investment insurance corporation in the world that provides Shariah compliant insurance, reinsurance and guarantee solutions.
Sustainable finance and ESG are entrenched in the ethos of Islamic financial institutions and multilateral development banks (MDBs). We adhere to the Shariah principles, not to exhaust nature but to preserve it; and deliver development and social impact without leaving people behind. The proscription of interest and usury is a defining sustainability factor, and an ESG framework is a built-in characteristic of Islamic finance and insurance.
Our mandate is to promote cross-border trade and foreign direct investment (FDI) in our member countries (MCs) by providing risk mitigation and credit enhancement solutions to exporters selling to buyers across the world and investors from around the globe investing in our MCs. These include Non-Honoring of Sovereign Financial Obligations (NHSFOs); Bank Master Policy Murabahah Facilities; Political Risk Insurance for Cross-Border Loans, Equity Investments and Projects; Sukuk Insurance Policy and Reinsurance and Co-insurance facilities.
Supporting intra-OIC trade is a priority for the ICIEC. Since its inception, the ICIEC has supported a total of US$30.2 billion in intra-OIC exports.
The ICIEC catalyzes impact by supporting transactions and projects that contribute to the SDGs. ICIEC business solutions are closely related to six goals. Our commitment is based on a Development Effectiveness Framework derived from a conceptual road map called ‘Theory of Change’, which links the corporation’s services to intended outcomes in the export, sustainable investment and financial sectors. It is further underpinned by a Monitoring and Evaluation System.
The SDGs have been a central tenet of the ICIEC’s operations since their introduction in 2015. Trade and investment facilitation is an effective vehicle by which to achieve the SDGs. We are committed to supporting sustainable development; we actively target real impact and change in all our insurance policies and projects; we support and act as a catalyst for private sector capital mobilization to be directed toward achieving the SDGs.
As the 2021 UN Climate Change Conference (or COP26) convenes in Glasgow, four metrics stand out: the science is indisputable, the issues are complex, the challenges monumental and the time for action is fast running out. Climate change is one part of the sustainability universe, including biodiversity, food and water insecurity, healthcare, financial inclusion, gender and other inequalities and human rights issues.
This requires all stakeholders to buy into the ESG and sustainable investment agenda in pandemic-related building back better and economic recovery and long-term financial, social and economic development.
While there is a definitive synergy and convergence between Islamic finance and the broader sustainable investing movement, the two are not necessarily wholly inclusive. There is potentially much overlapping, but the unique specificities of Islamic finance must not be lost in translation or the exuberance in achieving ESG and SDGs at any cost.
There is vast scope for intelligent and meaningful partnerships, cooperation and co-financing. The ESG challenges in terms of cost, technology and reach cannot be met by one country, bloc, institution or pool of funds. The ICIEC has established partnerships with over 131 national export credit agencies, reinsurers, banks and other multilateral institutions.
A burgeoning private sector and investment in infrastructure can lead to recovery from the pandemic for economic transformation, job creation and inclusive growth. The pandemic exposed the woeful lack of sufficient infrastructure in countries the world over. Infrastructure was brought to a near standstill. The ICIEC responded swiftly by forging strategic partnerships, ensuring the continuance of critical trade flows and creating innovative de-risking solutions to help mitigate fallout in MCs.
According to Fitch Ratings, there is currently a pipeline of US$12 trillion-worth of global projects, with rail and renewables the top investment sectors. Of this, US$7.49 trillion is required by Asia, the MENA region and Africa.
Political risk insurance and credit enhancement have a track record of effectively de-risking and thus catalyzing private investment into emerging markets through capital-efficient instruments. Channeling investment into sustainable projects presents a sizeable growth opportunity for insurance firms, especially infrastructure and development projects in various sectors. Insurers can design products to reduce risks in infrastructure projects and increase their attraction to investors.
The ICIEC has led from the front. We jointly launched with the IsDB the US$2 billion COVID-19 Guarantee Facility in support of the private sector, particularly COVID-19-hit industries, and attracting cross-border investments. In 2019, we jointly established the Co-Guarantee Platform for Africa (or CGPA) with other multilateral institutions to increase the volume of insurance and guarantee solutions available to project sponsors and their bankers.
MDBs are a significant finance and insurance source for developing countries, even though more can be done. The investment needed to green the global economy is enormous and exceeds the scale of official finance. The answer is a mix of government and MDB finance, private capital and philanthropy (including the Islamic instruments of Waqf, Zakat, Sadaqah) to fill the gap. When well-designed and implemented in a balanced regulatory environment to avoid unnecessary fiscal and other risks, public–private partnerships, for instance, can bring greater efficiency and sustainability to the provision of public services, thus freeing up scarce public resources for other purposes.
The ICIEC, since its inception in 1994, has built up an impressive record in facilitating sustainable investment in projects and infrastructure in MCs through its well-received risk mitigation solutions.
Cumulatively, over 27 years, the ICIEC has insured US$77.9 billion in trade and investment, which includes US$62.3 billion in supporting exports and imports and US$15.6 billion in support of FDI. Our activities were directed to specific sectors, including US$29.3 billion to clean energy, US$23.8 biilion to manufacturing, US$5 billion to infrastructure, US$2 billion to healthcare and US$1.4 billion to agriculture.
The ICIEC, together with the IsDB, was the fastest among peer institutions to respond to the pandemic. During the peak of the pandemic in 2020, underpinned by our ‘Aa3’ insurance financial strength rating by Moody’s Investors Service, the ICIEC’s business insured reached US$9.8 billion, of which US$5.4 billion was directed to sustainable energy, US$2.1 billion to manufacturing, US$861 million to services, US$586 million to infrastructure and US$37 million to healthcare.
The ICIEC’s pandemic-mitigation strategy is underpinned by:
i) US$643 million in insurance coverage toward the implementation of the IsDB Group’s US$2.4 billion COVID-19 mitigation Strategic Preparedness and Response Program
(or SPRP), guided by the three R’s (Respond, Restore, Restart).
ii) Supporting MCs’ recoveries, including US$262 million for the healthcare sector, US$331 million toward supporting imports of essential commodities and US$50 million for supporting the recovery of SMEs from the pandemic fallout.
iii) Partnering with the Islamic Solidarity Fund for Development (ISFD), the IsDB Group’s poverty alleviation unit, to launch the ICIEC–ISFD COVID-19 Emergency Response Initiative to preserve the flow of essential imports to MCs, such as medicines, medical equipment, food supplies and other essential commodities. The ISFD allocated a grant to the ICIEC that could support some US$400 million to procure urgent product needs.
The ICIEC’s sustainable financing impact and delivery over the years speak for themselves through the manifold transactions and case studies. To highlight a few:
1. Senegal benefited from our insurance to mobilize resources from private lenders given the scarcity of concessional lending. This provided comfort to investors and allowed them to be more flexible in extending the facility maturities. Senegal managed to secure private financing for the rehabilitation of a significant water collection system in Dakar. The financial structure enabled Senegal to borrow in local currency. Without the ICIEC’s support, these investments would have taken longer to financial close and probably at a much higher cost.
2. The ICIEC supported the Ivory Coast in developing its healthcare infrastructure by covering EUR142 million (US$163.95 million) for a Deutsche Bank financing of a major healthcare project. Two new hospitals with a collective capacity of 400 beds will be built in the underserved towns of Adzope and Aboisso. The hospitals will employ 600 local people and foster the development of a micro economy in the surrounding areas. The development impact of this project provides the people with access to quality healthcare and advancing progress toward SDGs 3 and 9.
3. The ICIEC supported Egypt in its COVID-19 response by providing US$135 million in an NHSFO policy for Sumitomo Mitsui Banking Corporation, covering its participation in a US$1.5 billion syndicated facility for the Egyptian government. The transaction serves SDG 8 by contributing to Egypt’s pandemic response efforts through maintaining economic activity.
Despite the challenging environment, the ICIEC maintains its resilience in mitigating these risks, ensuring the continued flow of international trade and sustainable investment between OIC MCs and the world. As countries slowly recover from the impacts of the pandemic, we will be there to support them as they rebuild a healthier, inclusive and resilient OIC community with sustainability as a priority.
We expect the impact of the pandemic to continue for a few years, even if it starts receding in earnest. We will continue to find ways to support our MCs, clients and partners throughout recovery.
In doing so, the ICIEC works to see its solutions bring companies closer to progress their sustainable financial goals and bring MCs closer to achieving their development agendas in the process.