Ethical Finance: Merging Profit & Purpose
The Global Ethical Finance Forum is an initiative of Middle East Global Advisors and the UKIFC, two leading institutions spearheading the agenda of sustainable and inclusive economy and of building connections with the broader ethical finance industry. The forum was a response to the growing interest in collaboration and convergence between stakeholders across the entire ethical finance universe only a mere few years after the Global Financial Crisis of 2008-9 demonstrated the need to reconsider the role of ethics in finance.
The global ethical finance industry constitutes approximately USD 22.89 trillion worth of assets under management, an increase of 25% from 2014. However, this is seen institutions and assets within developed markets. Ethical finance is on track to developing its global value proposition. However, catalyzing the wider adoption requires concerted efforts to build meaningful dialogue between the two main areas of ethical finance: one segment that integrates environmental, social and governance (ESG) factors, and Islamic finance which is expected to rise from USD 2 trillion to USD 3.5 trillion by 2021. There is a unique opportunity for ethical finance players in developed markets to connect with the Islamic/faith-based financial sector which enjoys a strong foothold in Muslim-majority emerging markets.
At its inaugural edition in September 2015, the vision ascribed to GEFF is to become a catalyst for a new, all-encompassing form of inclusive finance that connects key stakeholders from the various ethical finance sectors and facilitates previously untapped opportunities for convergence & collaboration.
GEFF 2017 endeavors to play a critical role in enabling stakeholders from the traditional responsible and Islamic finance sectors to forge and nurture new relationships aimed at building cooperation across sectors and geographies.
Dialogue across worlds (from Left to Right):
Humza Yousaf MSP, Minister for Europe & International Development of the Scottish Government, His Royal Highness Emir Muhammad Sanusi II, Emir of Kano, and Dr. Zeti Aktar Aziz, Governor of Bank Negara Malaysia, inaugurating the exhibition for GEFF 2015.
Scotland is the ideal destination for the historic talks across ethical finance divides due to its strong heritage in ethical finance and the creation of financial institutions such as Scottish Widows. This dates back to a rich financial heritage that includes the development of savings banks by Henry Duncan and the development of the mutual assurance industry, in which Scottish firms were amongst the early pioneers. This model was also used as the blueprint for the early Islamic banking attempts in the 1960s, which makes it particularly poignant that this new initiative in being led in Scotland.
Notable recent developments in Scotland include the launch of the Scottish Ethical Finance Hub (SEFH) to aid SMEs seeking ethical financing, as well as the active role of the Commissioner for Ethical Standards in Public Life and the Scottish Goldsmith Trust in encouraging sustainability. Collectively these are testament to a commitment to safeguarding the interest of people and their social environment in Scotland.
The theme for GEFF 2017 is “Ethical Finance: Merging Profit & Purpose”, reflecting the spirit of convergence and collaboration across the responsible finance universe, as well as a call for a more inclusive financial sector, that inspired the inaugural forum back in September 2015.
GEFF 2015 was historic for inaugurating a dialogue where one did not exist before—between Sustainable, Responsible and Impact Investing (SRI), Environmental, Social and Governance (ESG), and Islamic/faith-based Finance. Nonetheless, these discussions are in the early stages of encouraging the mainstreaming of ethical finance. Further, whilst these 3 segments share the same values-based approach, they are separated by boundaries of geography, perception and methodology. There is much work to be done to bear the fruits of these nascent connections.
The discussions at GEFF 2017 this September are also occurring in the context of unprecedented political and economic times. Political developments in the US, UK and Europe have sparked domestic debates about the forces of globalization and protectionism, with ultimate roots found in financial deregulation that has been occurred since the 1990s and well into and past the Global Financial Crisis of 2008-9. Certain segments of society feel they have missed out on the benefits of globalization, culminating in protests in the UK and US against the financial elite and professional classes.
As traditional ESG investors broaden their scope geographically (which in some places requires providing a Shariah-compliant offering), adopt things like the leverage-limiting ‘prudence’ screens from Islamic finance and as the Islamic finance adopts positive screening, there is much work to do marry the ethical underpinnings of responsible finance with profit motivations. GEFF 2017 will build on developments in responsible finance since September 2015 and forge a roadmap for the future trajectory of ethical finance.
Hosted by the Scottish Government in September 2015, the inaugural Global Ethical Finance Forum was a defining gathering of the most distinguished leaders in the Responsible Finance Industry. Aimed as serving as a bridge to connect emerging markets with the developed ones, GEFF attracted players from across the ethical finance universe:
Whilst these 3 segments share the same values-based approach, they are separated by boundaries of geography, perception and methodology.
GEFF 2015 was both timely and topical. The financial crisis of 2008-2009 highlighted the need for ethical finance to play a more significant role in the overall financial system. One of the key factors in the financial crisis was the decoupling between systemic risks being taken by the financial sector and the benefit it provided to the non-financial economy. In short, the disconnect between individual and societal returns was accentuated by and was also a cause of unethical behavior that were only recognized after they had wrought significant damage to the financial sector and the global economy.
GEFF was premised on the idea that convergence and collaboration will facilitate towards the mainstreaming of ethical finance. The esteemed Forum hosted critical conversations across several worlds – ESG, SRI, UNPRI, Islamic finance and other Responsible Finance Services Sectors. GEFF was conceived to reinforce the ethical finance movement, one edition at a time.
The Forum attracted distinguished leaders from around the world – ranging from Ministers and Central Bank Governors to CEOs of multibillion dollar asset managers, world’s largest ethical banks, multilateral institutions, and leaders in research, amongst others.
Ethical finance, as it is often defined, traces its origins back to the Religious Society of Friends (Quakers) who, in 1761, prohibited its members from participating in the slave trade. In parallel, the Methodist Church also exercised its opposition to the slave trade, preventing its followers from being involved in these dehumanizing commercial transactions. Collectively, these forms of protest to unethical practices spurred new norms around investment screens. From the 18th through to the middle of the 20th century, religiously-inspired opposition entered the public arena in a wider fashion, spurring, amongst other things, movements in support of the women’s suffragette in the US and the limiting of alcohol consumption, and morphing into the anti-Apartheid movement and eventually into the frameworks such as UN-back Principles for Responsible Investment.
Responsible finance has been dominated by western markets, however, there are also untapped opportunities in other parts of the world. With a population of 1.65 billion Muslims, many of whom live in emerging markets across the Organisation of Islamic Cooperation (OIC) countries, there is a unique opportunity to offer financial products which resonate with the values of Muslims.
There has been a bourgeoning interest toward SRI sukuk or green sukuk lately, reflected in the growing number of sukuk of this nature being issued in the global market to finance environmentally-friendly projects. In 2007 the European Investment Bank (EIB) launched a EUR 600 million climate-awareness bond premised around renewable energy and energy efficiency. Subsequently in 2008, the World Bank issued a total of USD440 million green bonds to support a climate-focused program for the Scandinavian pension fund. In 2013, the African Development Bank issued a USD500 million green bond to finance climate change solution in Africa. As of June 2015, World Bank has issued in excess of 100 green bonds that are valued at USD8.5 billion. Until January 2016, there was approximately USD 65.9 billion worth of green bonds circulated in the market.
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