Companies that implement sustainability standards see costs slide while performance improves, research by Arabesque Asset Management and Oxford University reveals.
The data highlighted synergies between responsible investment and Islamic finance, ahead of next month’s Responsible Finance Summit in Kuala Lumpur.
“Islamic finance is complementary to and a major enabler of making responsible investing more ubiquitous across emerging markets — and Asia is leading the way — but integrated reporting and governance remains gap for many investors,” event organisers said.
“To attract long-term capital, many companies in Asia are becoming more aware of how investors integrate ESG.
“In the process, they are becoming more open to engagement with responsible investors and in the process, are finding easier access to cheaper capital.”
Responsible Finance Summit organisers reported that Of the 34 companies listed on the Bursa Malaysia FTSE 4 Good Index of companies that score highest on ESG criteria, just nine are not Sharia compliant, however, four of those are banks with Islamic subsidiaries.
“Islamic finance is strongly connected to the real economy and places emphasis on how shareholders’ funds are used and whether they are in accordance with the values of investors,” they said.
“Expanding reporting requirements to include data relevant to ESG investors can help Islamic investors also better understand the permissibility of individual investments as well as allow integration of ESG to increase investment performance.
“As the importance of ESG spreads beyond equities and into fixed income and other asset classes, there is a recognition — in line with the longstanding perspective from Islamic finance — that a hands-off lender-borrower relationship is problematic.
“It is increasingly clear that all types of investors who are financing a business (including by financing them with debt) that non-financial factors can have significant financial impacts on their investment.”
