Environmental, social and governance (ESG) factors are rapidly arising in investors’ awareness worldwide and expected to grow in the Islamic finance industry due to a strong link between the two.
ESG are three central standards used in a company or business to measure its sustainability and the societal impact of its investment. Environmental refers to issues like resources, climate change, waste and pollution. Social refers to the treatment reserved for communities’ wellbeing and health issues, while governance refers to policies that deal with internal company affairs and a company’s relationship with the main stakeholders, including its employees and shareholders.
Such sustainable notions also exist in Islamic finance and the size is reportedly substantial. For example, Waqf, which is a donation of an asset or cash for religious or charitable purposes with no intention of reclaim, is construed as a type of socially responsible financing. Therefore, it is possible to imagine the thin alignment between the Islamic finance industry and these sustainable factors.
In Italy, this approach is spreading fast among the banks and in the financial sector, by strongly encouraging remuneration policies in exchange for the promotion of diversity and sustainability.
For example, in 2019, Euromobiliare Asset Management SGR, which is a branch of Credem Group, launched an equity fund that invests in companies operating in sustainable sectors such as real estate and energy. Also, Banca Generali has implemented new sustainable services and products on an online management portfolio platform while Unicredit has started a partnership for the launch of green bonds provided by European issuers.
Sustainability, equality and a clean environmental record are the essential factors of financial performance and savvy investors are starting to embrace them. It is now evident that this view is strengthening, particularly in Europe, where several investors have already adopted or are currently developing a responsible investment policy.
In such a scenario, sustainable investment funds are confirming their efficiency in managing underlying risks and delivering more resilient returns because they support and finance companies that are preserving the wellbeing of the planet and the community.
Stefano Loconte is the managing partner at Loconte & Partners. He can be contacted at [email protected].