Islamic Sharia Investments Go Green
For Arabic-speaking people, sharia means a moral code and religious law of a prophetic religion. Islamic sharia deals with personal matters such as sexual intercourse, hygiene, diet, prayer, everyday etiquette, and fasting, as well as topics addressed by secular law including crime, politics, and economics.
Today, many religious organizations exercise morality in investing, and Islam is no exception. Sharia-based finance has always forbade involvement in activities such as gambling, tobacco, and alcohol. But now the industry has begun to stress themes of wider social responsibility and encourage investors to consider “green” investing.
Last week, Malaysia’s stock market regulator announced long-awaited guidelines for socially responsible sukuk, or Islamic bonds, aimed at helping firms raise money for projects in areas such as renewable energy and public hospitals. The guidelines could expand Malaysia’s sukuk marketplace, the world’s largest, by attracting Western firms and investors familiar with the concept of socially responsible investing.
And, in April, the Dubai Supreme Council of Energy, a government planning body, signed an advisory services agreement with the World Bank to develop funding for the emirate’s green investment program, including “green” Islamic bonds. Dubai aims to derive 5 percent of its energy from sustainable sources and retrofit buildings to reduce energy consumption by 30 percent by 2030.
“From the demand side, we need to drop the energy demand by 30% by 2030,” said Ahmed Al Muhairbi, secretary general of the DSCE. “To do that, we need to spend up to AED50bn ($13.6bn) on a lot of projects. We want to raise a mechanism to find out how we go about spending.”
Firms in Britain, Canada, and Hong Kong are also offering sharia-compliant investments in sustainable farming investments. Ontario-based AGInvest, which entered into a Aharia Advisory agreement with Shariyah Review Bureau in June, encourages investment in land as a stable way to hedge against the financial markets and protect future generations.
“We see crop real-estate investments as a sustainable sector, one which is not easily affected by the depressing environment of countries around the world,” said Kent Willmore, President of AGInvest. “With our latest partnership we expect to provide Islamic investors in Canada, GCC, and elsewhere solid portfolio diversification with moderate risk and attractive returns.”
He also added, “The decision to offer Shari’a compliant transactions also shows how AGInvest’s business model allows it to accommodate diversified requirements of conscious investors proving our ability to generate new investments and create more value with Canadian farmers.”
It is not clear how successful these measures will be. Islamic mutual funds have previously made forays into the market for socially responsible investments, but those efforts struggled, partly because of limited distribution channels. And it is no secret that, in general, moral and ethical investing does not yield the same short-term benefits as regular investing.
But these sharia-based finance opportunities show promise. They are instruments tailored specifically to invest in a certain type of asset in a specific country or region. They combine Islamic screens — lists of criteria for sharia compliance — with other practices required by sustainable investment firms.
And, more importantly for some, they offer another opportunity to invest in ventures that are more aligned with the religious and spiritual principles we care about.
News Source: Reuters
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