Business at a Crossroads: Confronting Legitimacy, Economics, and Solutions
Tim Jackson is an ecological economist and writer. Since 2016 he has been Director of the Centre for the Understanding of Sustainable Prosperity (CUSP). CUSP is a multidisciplinary research centre which aims to understand the economic, social and political dimensions of sustainable prosperity. Its guiding vision for prosperity is one in which people everywhere have the capability to flourish as human beings – within the ecological and resource constraints of a finite planet.
Dr. Sarah Ivory, Senior Lecturer in Executive Education at the University of Edinburgh Business School, led the fireside discussion with Professor Jackson.
Professor Jackson addressed the urgent need to redefine economics and progress to effectively tackle climate change, biodiversity loss, and inequality as well as other challenges that conventional economics has failed to resolve. He critiqued the current economic system as unstable, driven by financialisation and fixation on growth and argued that this system has led to procrastination rather than progress, with growth rates in advanced economies declining since the 1960s.
Professor Jackson advocated for reframing investment as a commitment to the future, focusing on enterprises that generate societal value rather than merely financial returns. He stressed the importance of ethical finance in the transition promoting investments advocating for investments in growth-oriented sectors like renewable energy while avoiding harmful industries. He also highlighted the need for ongoing vigilance to ensure that investments remain aligned with societal progress. The critical role individuals play in fostering change, citing figures like Wangari Maathai and Peter McCase and their dedication to ethical investment and sustainability, was mentioned during the discussion.
Professor Jackson concluded by encouraging delegated to increase their awareness of the risks posed by vested interests that prioritise growth over societal well-being.
Navigating Uncertainty
After an insightful keynote, John joined a fireside chat looking at how we can navigate uncertainty while maintaining a commitment to sustainability across different regions. The discussion was led by Amal Larhlid, Partner, PwC Middle East.
Rachel A. Aron, Managing Director, Tugo Cwiny Management Consulting started by outlining the critical global forces influencing Africa today. These include a surge of interest in its resources, often referred to as a “golden rush”, new forms of imperialism from various continents, the emergence of global sustainability standards originating outside the continent, increased regionalism and trade relations, and growing South-South cooperation among developing countries.
Opportunities for Africa are abundant. Key initiatives mentioned by Rachel included effectively implementing the African Continental Free Trade Area (AfCFTA), engaging with the expanding BRICS+ alliance, fostering inclusive industries that focus on value addition, leveraging social capital, enhancing climate change adaptation strategies, creating alternative economic livelihoods, and exploring blue economy prospects such as sustainable aquaculture and ocean energy.
Leon Kamhi, Head of Responsibility and EOS, Federated Hermes then addressed broader global trends such as the energy transition, which necessitates new investment approaches, the disruption of AI and technology, and the geopolitical tensions that highlight the need for a just transition. He outlined strategies to make development more investable in Africa, including integrating economic and social linkages into policies and investment projects, utilising a mix of public and private sector investments, addressing socioeconomic and cultural vulnerabilities, leveraging sovereign wealth funds, and tailoring sustainable finance to the African context while involving regional financial institutions.
John Pang then presented some key initiatives underway in China, highlighting that “China’s environmental policy is not a bolt on; it is a matter of survival.” Examples included China’s approach to partnerships and investments (in infrastructure such as schools, bridges, roads, airports, and ports) that have supported Africa’s development needs.
Panelists went on to discuss broader ethical frameworks, especially those of Ibn Khaldun and Adam Smith, which are essential for tackling sustainability challenges and navigating uncertainty.
Living with Uncertainty
John Pang, Senior Fellow at The Belt and Road Initiative Caucus for Asia Pacific kicked off this session by delivering a keynote address drawing upon his expertise on thriving in turbulent times and China’s perspectives on global challenges. He started his keynote by discussing the importance of global cooperation and unity in addressing sustainability challenges, particularly in the context of a fragmenting world order.
“We live in a world that is increasingly decoupled, facing challenges such as multipolarity and de-globalization. Why is this relevant? Because this is not just a project in Edinburgh or a financial initiative. We are confronting a global challenge that requires collective action and unity of purpose on a scale never seen before, especially at a time when the notion of one world and one humanity is more threatened than it has been since the last great war.” John stated.
John went on to highlight China’s significant progress in reducing emissions, installing two-thirds of the world’s solar panels, reducing solar panel prices by 90% over the last decade, doubling forest cover since 1949, and planting 30 million hectares of new forest. He emphasised the importance of finding a common intellectual world, a shared understanding of information and knowledge, and reconnecting with different perspectives. John cited the historical example of the Scottish missionary James Legg, known as the ‘Dean of Chinese translators into English,’ as an example of the kind of engagement and connection needed to address global problems.
Scottish Taskforce for Green & Sustainable Financial Services Final Report Launch
GEFI Global Steering Group member David Pitt-Watson joined Deputy First Minister of Scotland and Cabinet Secretary for Economy and Gaelic Kate Forbes to launch the Scottish Taskforce for Green & Sustainable Financial Services’ Final report.
Initiated by the Scottish Government and GEFI (secretariat) with support from Scottish Financial Enterprise (industry partner), the Taskforce was active from February 2022 until May 2024. It sought to coordinate and enhance Scotland’s sustainable finance cluster and develop its position as a leading global centre of excellence for green and sustainable finance.
With active participation from 24 financial institutions and financial services stakeholders, during its 2+ year lifespan, the Taskforce hosted 8 formal meetings, delivered 2 presentations to the First Minister’s Financial Services Growth and Development Board, facilitated over 10 workshops and conducted 50-plus private meetings.
The report includes significant and timely recommendations, such as the further development of the annual Green Finance Summit to incorporate investors and the exploration of establishing an industry-led Green and Sustainable Finance Institute.
At the Summit, the Deputy First Minister delivered a keynote address before joining Taskforce Chair David Pitt-Watson for a fireside chat. The session concluded with a video from Mark Carney, UN Special Envoy on Climate Action and Finance (available on the Taskforce website).
Some of the key insights shared during the report launch at the Summit included:
“This is a pivotal time in our journey. We know that the cost of transitioning to a net zero economy are lowest and the opportunities are greatest with early and well managed action. The Taskforce report is a routemap that will take us to that end point of success and we as society, government, and industry are accountable to rise the challenge and deliver it.” Kate Forbes MSP, Deputy First Minister of Scotland and Cabinet Secretary for Economy and Gaelic
“Today marks an important milestone. Scotland embodies what the world requires to build a sustainable future, both Smith’s invisible hand in the market with his moral sentiments of a society dedicated to sustainability combined with the innovation and pragmatic spirit of the Scots, gave rise to the Industrial Revolution and positions Scotland to lead the sustainable revolution.” Mark Carney, UN Special Envoy on Climate Action and Finance
“The GEFI team has been a huge support to the Scottish government and to the wider financial sector, promoting the global dialogue around the development of ethical finance and supporting Scotland’s ambition to become a truly competitive global centre for green and sustainable financial services.” Kate Forbes MSP, Deputy First Minister of Scotland and Cabinet Secretary for Economy and Gaelic
EF Global 2024 Welcome Remarks
This year summit kicked off with inspiring words from Omar Shaikh, Managing Director, GEFI; Thom Kenrick, Head of Social Strategy & Impact, NatWest Group; Dr. Sarah Ivory, Senior Lecturer in Climate Change and Sustainability, University of Edinburgh Business School.
The summit will feature a combination keynotes, conversations, panels and presentations covering navigating uncertainty, leadership and purpose, the transition to net-zero as well as nature and climate solution. Today we will hear from 36 speakers, who have come from Europe, Asia, Africa, and the Americas and expecting over 250 delegates to join across the day.
WANTED! An Offer to Private Finance on International Climate and Nature Finance
In May, we wrote about how 2024 is meant to be the year for international climate finance. We underlined the fact that the UNFCCC and the international climate community are sadly way behind the game on mobilizing climate finance for developing countries to tackle the dual challenges of the energy transition and climate adaptation. We also highlighted how the negotiators on the Global Biodiversity Framework (GBF) are exploring how public and private finance can be mobilized to deliver on the GBF.
This combination of public and private finance is essential if it is to be scaled up – nearly $200 trillion to reach the net-zero targets of 2050, according to a European Commission paper from earlier this year – and at the urgent pace required. However, after a meeting between climate negotiators in Baku which finished on 11 September, it’s obvious that the UNFCCC talks on finance are stuck on the key issues of the amount that needs to be mobilized (the “quantum” in negotiator speak) and which countries should be contributing (the “contributor base”, i.e. should major non-Western economies like China and Saudi Arabia be donors as well. The over-riding concern is that the goal of agreement on a New Collective Goal (NCQG) on finance at COP29 in November ends in failure. This stalemate is obviously very worrying, given its potential to derail the entire COP29 meeting in Baku in November. But we also believe that these differing views on the quantum and contributor base risk overlooking the central issue: that raising the huge amounts of international climate and nature finance required will only be accomplished by mobilizing the private sector. And for the finance to be mobilized, the private sector needs a full and comprehensive offer from policymakers that presently is not on the table.
Governments could usefully learn from how the renewables market has become a $1.3 trillion global market. This has been achieved – alongside the polluter pays principle for high-carbon energy sources - through a clear focus on the policy frameworks (mechanisms to incentivize investments in low-carbon energy sources), supported by a recognition that governments can help to de-risk those investments through strong political commitments backed-up by judicious, targeted public finance which primes the pump for private sector investment.
On nature finance, there is an equal pattern where the urgent scale up of funding is required: the biodiversity funding gap is a US$700 billion annual finance gap to fill by 2030. At COP16 next month, governments are required to present, via the National Biodiversity Strategies and Action Plans (NBSAPs), strategic plans to support the increase of finance for nature from all sources. So far, only 14 countries have submitted their updated plan: Republic of Korea; Malaysia; Suriname; Italy; Canada; Austria; Ireland; China; France; European Union; Luxemburg; Hungary; Japan; Spain.
So how can this full-throated offer to the private sector on international climate and nature finance be made? We suggest in two mutually supportive ways: through a policy re-framing, and through innovation.
The task of re-framing is probably the less problematic of the two. Central to this is about changing mindsets. At its core, we think that the entire policy community – Global North governments, the international financial institutions (IFIs) like the World Bank, the regional multilateral development banks (MDBs) – need to shift the debate (and associated differences of opinion) away from arguing about whether individual countries should be a donor. Instead, there needs to be an acknowledgment that: a) some of the BRICS heavyweights such as China and Brazil are paying into climate finance support via their contributions to the IFIs and the MDBs, and also through bilateral support, eg China’s support for climate-related projects in Africa; and b) while public finance is obviously key to incentivizing private sector investment, in the final analysis, it is private finance which will change the game at scale on financing the transition. Pivoting in this way to a partnerships framing – North/South in parallel with public/private - can, we feel, unlock international co-operation and supersede the zero-sum situation.
This takes us on to the second complimentary approach: a concentration on innovative sources of finance. So many ideas of how and where to mobilise private finance have been floated. In summary, we see these ideas boiling down to a three-part offer:
- First on subsidies, where we make no apology for consistently advocating this theme. Carbon Tracker recently made a strong case for international subsidy reform, predicated on moving government support away from fossil fuel production. A shift in this policy area – which requires comprehensive backing across the international spectrum, combining the political (UN, G20, IEA and regional groupings like the EU) with the economic (World Bank, IMF, the MDBs) – would send a powerful signal to the private sector that they can with confidence fall in behind Article 2.1.c of the Paris Climate Agreement (the objective to shift financial flows from high-carbon to low-carbon energy sources.) Subsidy reform should be top of the policy agenda for the Brazilian Government, as it assumes not only the BRICS chairmanship in 2025, but the Presidency of the all-important COP30 in November 2025. Equally, nature would strongly benefit from a reduction of governmental environmental harmful subsidies (EHS). Target 18 of the GBF, the first quantitative reduction goal for EHS, commits to reduce environmentally harmful subsidies by $500 billion annually by 2030. While research shows the scale of subsidies continues to rise, greater effort is expected by governments. Of course, subsidy reform at the global level is hardly a new concept – but a multi-stakeholder approach bringing together the international political and economic decision-making institutions would be something new;
- Second, a concerted international focus on debt in developing countries could also have a transformative effect on the investment environment for private finance in the Global South. An initiative on debt would also have the benefit of tackling climate and nature finance, given that it is a common obstacle to scaling up private finance in both areas. The debt crisis in itself is crying out for an innovative approach. Think-tanks such as the World Economic Forum as well as Planet Tracker have written extensively about innovative financing models for debt-for-climate and debt-for-nature swaps. Indeed, debt-for-nature swaps - where a country receives debt relief in exchange for committing to protect its forests – have been around for some years. Debt-for-climate swaps have been less utilized; but the principle, which could also be broadened to encompass the energy transition so that a government benefits from concessional finance for decarbonization commitments, is the same. There are question marks about how much finance, debt solutions would raise. But imaginative and urgent policy development around debt could unquestionably serve to create a more favourable investment environment in Global South countries;
- Last, a private sector offer which genuinely leverages private finance innovation. Carbon Tracker and Planet Tracker engage regularly with investors and we know the scope for innovative thinking which resides in the sector. One such example is the insurance industry, who were early movers on pricing in climate and nature risk. Whether multilateral frameworks such as the UNFCCC and UN Convention on Biological Diversity have the flexibility to incorporate private finance into the NCQG process and complimentary processes is uncertain; however, the urgency of the twin crises surely requires a fresh partnership approach to incorporate innovation from private finance and investment sectors.
We suggest these channels be complimented by role modelling good practice disclosure and case studies of innovative sources of finance used to attract capital into and from private sector organizations willing to invest their resources into renewables. This can provide a roadmap and impetus for other organizations to compete through innovation.
In conclusion, the platform for international climate and nature finance needs to be de-risked, so that it can foster the low-interest rate investment climate for emerging market and developing economies, which is essential if the private sector is to make a transformative difference. A policymaker offer grounded in a new partnership approach and in innovative thinking – and which in the first instance requires a pivot in how governments publicly communicate their needs and priorities – could also help to rebuild the trust between the developed and developing world on finance. As the faltering NCQG negotiations are demonstrating, the climate of trust between Global North and Global South countries remains seriously eroded – this situation needs to be turned around fast.
This guest blog was written for the GEFI Insights Series by Richard Folland, Carbon Tracker Initiative
Transition Today
How can investors address the causes and impacts of climate change?
Investment decision-making, both today and longer term, includes addressing whether running “green portfolios” to respond to the transition to a net-zero economy can help manage investment risk and opportunity and mitigate the effects of global warming.
At the same time, the physical damages wrought by climate change – with extreme floods, droughts and wildfires now the norm in many regions – are already influencing investment and insurance decision-making, triggering a growing recognition of the importance of adaptation action to increase climate resilience.
This points to the need for a broader definition of the climate transition. This should be one that expands beyond carbon reduction to address the issues of nature loss, physical risks and adaptation. Any definition should also encompass engagement in the circular economy and support for the principles of equality for sustainable development.
An evolved definition of transition
An evolved definition of transition would seek to broaden investment approaches beyond carbon-reduction objectives, considering and incorporating solutions for both mitigation and adaptation to the physical risks of climate change.
Investors typically establish interim and 2050 science-based targets. Increasingly, such targets recognize that natural capital is critical for both mitigation efforts and combatting climate change. We observe that an increasing number of investors are seeking to integrate considerations of natural capital into investment research and analysis to help prevent nature loss and build out solutions. A circular economy supports these aims by encouraging investor allocations to companies that enable maintenance of finite resources. A “fair-share carbon budget,” which allocates the global carbon budget in a manner perceived to be equitable and fair across different countries, is also a key component of transition.
Expanding the definition
The infographic below presents an expanded view of climate transition, comprising five interrelated issues. Its process is iterative to allow for a better assessment of transition.
Transitioning to a net-zero economy
A more holistic approach expands the focus from carbon reduction and mitigation to encompass physical risks and adaptation, natural capital, supporting a circular economy, and the principles of equality and sustainable development in capital allocation.
To ease the transition to a net-zero economy, investors can use portfolio tools such as Mercer’s Analytics for Climate Transition (ACT). They can focus on manager and strategy selections that prioritize a wider set of transition risks and opportunities. And they can report progress using the frameworks provided by the Task Force on Climate-Related Financial Disclosures (TCFD) and the Task Force on Nature-Related Financial Disclosures (TNFD).
As case studies show, further key steps include making the following investment decisions:
- Assess each portfolio’s transition capacity.
- Identify areas of higher transition risk.
- Identify engagement priorities.
- Set portfolio-level targets across decarbonization, exposure to green transition-aligned solutions and engagement activities.
- Align capital allocation with the advice of the International Sustainability Standards Board, TCFD and TNFD. This should be done when selecting and assessing portfolio companies in relation to social and environmental issues. Resource-use issues including (but not limited to) carbon and emissions should also be considered.
- Develop TCFD and TNFD reporting.
- Undertake reporting commitments as part of net-zero, nature and circularity initiatives.
- Review investment manager progress on climate mitigation and adaptation, nature, and circularity issues.
- Set sub-portfolio targets.
- Review proposed benchmark changes for sustainability and climate-aligned indices for index-tracking equity and credit portfolios.
This guest blog was written for the GEFI Insights Series by Helga Birgden, Mercer, and Sarika Goel, Mercer.
Beyond Green: The Real Impact of Biodiversity on Businesses and Banks
Biodiversity loss, the ongoing decline in the variety and abundance of species in ecosystems, has profound direct and indirect impacts on businesses across diverse sectors. These impacts encompass a wide range of economic, regulatory, and reputational factors that affect the operational landscape of businesses globally.
Direct Impacts:
• Supply chain vulnerability: Biodiversity loss can directly jeopardise the stability of supply chains. Industries relying on natural resources, such as agriculture, forestry, and fisheries, may experience disruptions due to the decline of key species. For instance, a reduction in pollinator populations can adversely affect crop yields, directly impacting food and beverage industries.
• Escalating operational costs: The loss of ecosystem services, such as water purification, soil fertility, and pest control, can heighten operational costs for businesses. As these services decline, companies may need to invest in alternative technologies, leading to increased expenditure.
• Regulatory compliance challenges: Biodiversity loss often prompts stricter environmental regulations. Businesses may face challenges in adapting to these evolving regulatory landscapes, requiring investment in new technologies, processes, or compliance measures. Failure to comply can result in penalties and legal repercussions.
• Legal liabilities: Companies engaging in activities contributing to biodiversity loss may encounter legal liabilities. The legal landscape is evolving, with a growing recognition of the need to hold businesses accountable for environmental damage. Lawsuits and fines can have significant financial implications for companies found responsible for biodiversity degradation.
• Reputational and brand risks: The impact of biodiversity loss on a company’s reputation is significant. In an era where consumers and investors often prioritise sustainability, businesses associated with environmental harm may face reputational damage through loss of customer trust, diminished brand value, and difficulties attracting socially responsible investors.
Indirect Impacts:
• Market access and trade challenges: Biodiversity-related concerns can lead to trade barriers and market access challenges. Some countries and trading blocs may impose stringent requirements related to sustainable sourcing and production. Businesses failing to meet these standards may find themselves excluded from certain markets.
• Financial market risks: Biodiversity loss contributes to broader environmental and social challenges, including climate change and social inequality. These issues pose financial risks to businesses, impacting investments, insurance costs, and overall market stability.
• Innovation imperative: Biodiversity loss can stimulate innovation as businesses seek sustainable alternatives. Companies that invest in eco-friendly technologies, green supply chains, and biodiversity conservation initiatives may gain a competitive edge.
• Consumer preferences and loyalty: Changing consumer attitudes towards environmental sustainability drive demand for eco-friendly products and practices. Businesses aligning with these preferences not only attract environmentally conscious consumers but also enhance brand loyalty and customer retention.
• Long-term business resilience: Biodiversity loss poses systemic risks that affect the long-term resilience of businesses. Companies that incorporate biodiversity conservation into their strategies are better positioned to navigate evolving regulatory landscapes, market dynamics, and societal expectations.
It is clear the direct and indirect impacts of biodiversity loss underscore the urgency for businesses to adopt sustainable practices, innovate, and contribute to biodiversity conservation efforts to ensure their long-term viability in a changing global landscape.
Visit Chartered Banker Institutes’s Knowledge Hub for more global insights which affect bankers (and the world) and will signal significant change in the industry.
Bridging Faith and Sustainability: Unlocking Islamic Sustainable Finance
The COP28 marked another milestone in the global effort to combat climate change where countries had committed a climate finance goal of $100 billion annually until 2025. As the finance world continues to focus on sustainability, Islamic finance is emerging as an untapped pool of capital that aligns faith-based finance with environmental, social, and governance (ESG) principles.
The industry which adheres to Islamic law is projected to reach USD6.7 trillion by 2027. Islamic finance prohibits the receipt and payment of “riba” (interest), “gharar” (excessive uncertainty), “maysir” (gambling), short sales, or financing9
2 activities considered harmful to society. As such, Islamic financial institutions are uniquely placed to finance the transition to net zero.
The backdrop to COP28 was a world fighting a climate and nature crisis with a financial system that was not delivering for people and the planet. It has therefore set a pace for the growth of Islamic sustainable finance to fill the gaps in fighting climate and nature crises.
Islamic Sustainable Finance at COP28 and beyond
COP28 saw a greater focus on Islamic finance than previous COPs. As part of the Path to COP28 campaign (the first, and largest finance-focused campaign for the Dubai Climate Summit), DIFC hosted the main (and largest!) event focused on Islamic finance attracting over 200 leaders and practitioners. This was UKIFC’s “Unlocking Islamic Finance at COP28”. It was at the Summit that the Global Islamic Finance & SDGs Taskforce also announced the publication of its Key Outputs Report. It also created a platform to introduce Islamic sustainable investing to the world with the UKIFC launching the Secretariat for Tayyib Inspired.
The Secretariat will manage the Islamic Sustainable Investing Platform (the Platform) which is ‘a listing of independently assessed, validated and showcased Islamic investment products that are directly aligned to sustainability goals’. The concept of “Tayyib” (pure, wholesome, and impactful) in Islam serves as the inspiration and framework for the Platform. It enhances the “halal” paradigm that was effectively established by the early pioneers of Islamic finance and promotes the growth of the Islamic asset management industry. Fundamentally, it aims to represent Shariah compliance in conjunction with a heightened emphasis on active, sustainable—also known as ESG/Responsible—investing within the framework of Islamic principles.
Another notable initiative at COP28 was the Central Bank of the United Arab Emirates, and the Higher Shari’ah Authority, issuing the guiding principles on sustainable Islamic finance. These guidelines aim to incentivise and encourage Islamic financial institutions (IFIs) in the UAE to bolster sustainability within their practices and processes, aligning with a vision that considers both environmental and social dimensions.
To support this process, the UKIFC held the first Unlocking Islamic Sustainable Finance Roundtable in the UAE on 23 May 2024. The event which was hosted by PwC Middle East brought key stakeholders together to discuss how to build an enabling environment in the UAE for Islamic sustainable finance (ISF). Financial institutions shared steps they were thinking to adhere to the guidelines and where support was needed.
Growth of Green Sukuk
At COP28, the UKIFC and London Stock Exchange Group published the “Financing a Sustainable Future – Green & Sustainability Sukuk Update 2023,” a key outcome of the High-Level Working Group on Green and Sustainability Sukuk (HLWG). The report highlighted that green and sustainability sukuk issuances reached $9.4 billion in 2022 and exceeded the $10 billion mark by the third quarter of 2023.
A notable development at COP28 was the collaboration between the Islamic Development Bank (IsDB), London Stock Exchange Group (LSEG), and International Capital Markets Association (ICMA) to publish a green sukuk practitioners’ guide aligned with the Green Bond Principles and Sustainability Bond Guidelines. The Guidance on Green, Social and Sustainability Sukuk was launched in Saudi Arabia during the 50th Golden Jubilee anniversary of IsDB on 29th April, 2024. It is an output of the HLWG which would support the growth of green and sustainable finance within the sukuk market by providing issuers and market participants with guidance on labeling sukuk as green or sustainable, including examples, case studies, and best practices. It also aims to improve investors’ awareness of sukuk as an asset class in the global fixed-income markets and thereby increasing the market.
2024 saw an increase in sustainable and green Sukuk, with a total issuance of nearly US$ 4.0 billion in Q1 2024, a 17% increase from Q1 2023 which according to LSEG was ‘mostly driven by sustainability Sukuk from GCC banks’. Meanwhile, issuances are expected to be between $160 billion and $170 billion, according to Fitch Rating, which has also forecast that the global Sukuk market will surpass $1 trillion in 2024.
Sustainable Banking Practices
Islamic banks are increasingly incorporating sustainability criteria into their operations and investment decisions, leveraging the principles of risk-sharing, ethical investment, and asset-backed financing to align with environmentally conscious practices. The UKIFC’s 2023 survey of 2,000 banking customers from four continents revealed that 90% of respondents deemed it essential for their bank’s products to be aligned with the Sustainable Development Goals (SDGs).
Leveraging its almost 20 years of experience in Islamic finance and its sister entity Global Ethical Finance Initiative’s expertise in sustainable finance, to accelerate climate action across the global financial services sector. UKIFC is keen to support financial institutions in their journey towards net zero through is advisory services.
Conclusion
As the world transitions towards a cleaner energy future, Islamic finance has an immense opportunity to enable investment consistent with both climate goals and faith-based values. COP28 commitments serve as a launchpad for the Islamic finance industry to scale up sustainable financing and develop innovative solutions for a low-carbon society, taking a substance-over-form approach. With COP29 and COP30 on the horizon, the industry is poised to build on this momentum, further refining and implementing strategies that align Shariah principles with global sustainability targets. The innate wisdom within the concept of sufficiency and principles of stewardship are key contributions the collective faith voice can, and must, make at these forthcoming COPs, helping to shape long-term climate action plans and reinforcing the role of ethical finance in addressing global challenges. This ongoing engagement across successive climate conferences will be crucial in solidifying Islamic finance’s position as a driving force in sustainable development.
This guest blog was written for the GEFI Insights Series by Oyin Bamgbose, Islamic Finance Council UK.
The Role of Finance in Improving Society | Ethical Finance Round Table
GEFI's 32nd Ethical Finance Round Table was hosted by Martin Currie and focussed on the often overlooked ‘s’ in ESG and heard from Lauran Halpin, Martin Currie and Thom Kenrick, NatWest Group.
Ethical Finance Round Table
Based in Edinburgh, the award-winning Ethical Finance Round Table series is the longest-running platform in ethical finance, bringing together the leaders in the field to enable learning and build community. Since establishing the series in 2010, we have seen opportunities flourish amongst the participants in the Round Tables. The Ethical Finance Round Table Series is currently being held virtually.
The session highlighted our host Martin Currie’s approach to responsible investing and NatWest Group’s structured approach to prioritising social issues. With senior representatives from organisations such as Green Investment Group, Mercer, Phoenix Group, Scottish Government, Scottish National Investment Bank, and UNEP FI in attendance, the engaging discussion explored the key social dilemmas, and the utility of the SDGs in finance.
Improving Society
The session opened with a presentation by Lauran Halpin, who offered a comprehensive overview of Martin Currie’s innovative approach to driving impact across its investments. As well as integrating stewardship and sustainability within investment teams, Martin Currie has a focus on SDG alignment and impact. Lauran then went into detail on the Improving Society fund strategy that seeks to generate financial returns at the same time as driving social change by addressing some of today’s most pressing social challenges.
Lauran explained that portfolio companies generally respond positively to KPI expectations as they align with their business goals, and where KPIs are not met, Martin Currie actively engages with them to understand and address any underlying issues while maintaining transparency and consistency in their reporting.
Measuring Impact and Dealing with the Unexpected
Thom Kenrick then provided a banking perspective emphasising the importance of identifying relevant social issues through a structured and scientific approach. NatWest Group, Thom explained, prioritises issues based on regulation, materiality, and real-world impacts, leveraging the UN Principles for Responsible Banking’s impact tool to understand its lending portfolio’s impact on the SDGs. The COVID-19 pandemic, regional conflicts and cost of living crisis were cited as examples of unexpected issues that were not included in the materiality processes but nonetheless consumed significant time and resources.
By proactively addressing emerging social concerns, NatWest Group sets an example for the finance industry and reinforces its position as a trusted partner in building a sustainable future.
Engagement and Social Dilemmas
Following the opening remarks from Lauran and Thom, a wider discussion ensued, exploring the role of finance in society. As noted below gambling, animal welfare, and arms manufacturing emerged as key social challenges for financial institutions:
- In balancing the gambling sector’s revenue of £3.3bn with the issue of 160,000 to 340,000 problem gamblers in England [i], NatWest Group gave the example of its collaboration with GamCare to improve company practices to meet the bank’s criteria.
- While ethical considerations and challenges of balancing necessary animal testing with ethical concerns in investment processes still exists, there was consensus that there is increasing regulatory momentum and client engagement regarding animal welfare, which is influencing investment decisions.
- In addition to the investment challenges and ethical complexities around defence, the fluctuating discourse influenced by geopolitical contexts was highlighted, emphasising the need for consistent, informed discussions to navigate these issues responsibly.
It was apparent from the discussion that addressing such social dilemmas is not easy and it requires financial institutions to navigate complex ethical landscapes.
The Utility of the SDGs
The discussion then moved on to measurement and reporting. The consensus was that evaluating the social impact and performance of companies can be challenging to quantify due to its broad scope. As a universal call to action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity, the spotlight was placed on the UN SDGs.
Whilst it was acknowledged that the SDGs provide a useful framework for global conversations and alignment, it has its limitations. The SDGs do not cover issues such as cancer research, obesity, cultural heritage, indigenous peoples, and animal welfare. They are perceived as being more state-focused, thus necessitating a flexible interpretation for effective private sector engagement in diverse local contexts like addressing child poverty in Scotland.
Private sector involvement is crucial for achieving the SDGs, but efforts need to be scaled up significantly. Current business engagement is limited by geopolitical and economic challenges, with many companies not meeting their SDG commitments [ii]. To address this, actions include standardising corporate accountability measures, leveraging investments in innovation and collaborative platforms, and advocating for supportive policies. Increased accountability, strategic investment, and policy advocacy are essential for amplifying private sector contributions to the SDGs.
Summary
The Round Table provided a collaborative space for experts to discuss the role of finance in driving social change at scale, fostering transparency and accountability in reporting, and the crucial need for increased strategic investment, and policy advocacy to amplify private sector contributions to the SDGs.
The key takeaways from this wide-ranging discussion were:
- Martin Currie’s innovative approach to responsible investing, demonstrates that delivering SDG impact can be profitable.
- NatWest Group’s structured approach to identifying issues and impacts illustrates how proactive engagement with emerging social concerns can position financial institutions as leaders in sustainability.
- The recognition of key social dilemmas for finance such as gambling, animal welfare, and defence present a complex risk challenge to the finance sector.
- The SDGs is a useful global framework, but increased accountability, strategic investment, and policy advocacy is needed to amplify private sector contributions.
If you are interested in the ‘S’ in ESG, Lauran Halpin joined Carmen Cheng, NatWest Group for a discussion on the Just Transition, during London Climate Action Week. The episode is part of the GEFI Insights Series and will be uploaded soon.