1. The Relationship Between the Sustainable Development Goals and Islamic Finance
Prof. Robert G. Eccles
Professor, Said Business School, Oxford University
Chairman, Arabesque Partners
Washington DC – Capital Markets
Facilitating Responsible Finance through Islamic Capital Markets—Alternative Funding and Investment Avenues
November 10, 2016

2. Responsible Asset Owners – UN Principles for Responsible Investment
1500 Signatories
50 countries
Representing US$60 trillion
[1]
[1] goo.gl/JZhJeN

3. Responsible Companies – The 10 Principles of the UN Global Compact
+4000 non-businesses
Annual filing of process report
[2]
[2] goo.gl/w6Xn3u

4. Responsible Countries – The 17 Sustainable Development Goals (SDG’s)
On 1 January 2016, the 17 (SDGs) of the 2030 Agenda for Sustainable Development officially came into force. 
The SDGs build on the success of the Millennium Development Goals (MDGs) and aim to go further to end all forms of poverty.
The new Goals are unique in that they are a call for action by all countries, poor, rich and middle-income to promote prosperity while protecting the planet.
While the SDGs are not legally binding, governments are expected to take ownership and establish national frameworks for the achievement of the 17 Goals. 

5. The 17 Sustainable Development Goals (SDG’s)
[3]
[3] goo.gl/ZzwxQ0

6. Implementing the SDG’s

7. Institutional Investors - Current State of SDG implementation
AuM of respondents was US$5.9trillion, ~ 10% of total PRI signatories’ AuM
56% of respondents say that senior leadership see the Goals as relevant to their whole organization, 44% see the Goals as relevant to their investment team.
62% of respondents believe that acting on the Goals can create opportunities for increased investment returns.
75% of respondents are already taking action on three or more of the Goals.
Nearly two thirds of respondents are already working with civil society and policy makers on environmental, social, and governance (ESG) issues relevant to the Goals.

8. SDG’s – Investors’ ranking based on each goal’s potential to help meet investors’ investment objective
Top 5 Group
Medium 7 Group
Bottom 5 Group
Source:
Ivanova, Mila R., and Mountford, Frances J., (2016), Transforming our World through Investment . ShareAction. Table 1.
Available via goo.gl/XvT0S5

9. SDG’s - Main Barriers for Investors
“The main barriers to investors focusing on the Goals are lack of data showing the relevance of Goals to investors (cited as a barrier by 66% of respondents), the wide ranging nature of the SDG framework (cited by 57%) and insufficient investee company transparency on ESG issues (cited by 55%).” [4]
 However, sustainability creates value [5]
 Standardization plays an important role
Sources:
[4] Ivanova, Mila R., and Mountford, Frances J., (2016), Transforming our World through Investment . ShareAction.
Available via goo.gl/XvT0S5
[5] G Clark, A Feiner & M Viehs, From the stockholder to the stakeholder, 2015,
Available via goo.gl/G1dnGy

10. Principles of Islamic Finance – link to Maqasid Al Shariah
Islamic Finance – Link between IF and SDG’s?
Principles of Islamic Finance – link to Maqasid Al Shariah
Shariah Law
Faith
Lives
Intellect
Offspring
Wealth
The ultimate objective of Shariah Law is to protect the well-being of people, which lies in the safeguarding of:
their faith (deen)
their lives (nafs)
their intellect (aql)
their offspring (nasl)
their wealth (mal)
 Maqasid Al Shariah promotes social justice.
“…the principles we’re fighting for are very well inscribed in Islamic finance.”[6]
Managing Director of the IMF, Ms. Christine Lagarde
Source:
[6] Islamic Development Bank (2015), The role of Islamic Finance in Achieving Sustainable Development Goals.
Available via goo.gl/QUbeIF

11. Islamic Finance and ESG – Common Approaches?
Non-financial Factors
Avoidance of Debt / Leverage
Positive Lists /
Preferred Inclusion
Negative Lists / Exclusions
Zakat / Distribution to the needy
Engagement
Proxy Voting
Instruments linked to real assets
Best in Class
Source:
IdealRatings (2016). ESG and Islamic Finance. Company Presentation based upon AG (2013). Towards a more sustainable Finance System.

12. Islamic Development Bank – IF’s main contribution to the SDGs
Major Areas of Contribution of Islamic Finance
Financial Stability
Financial Inclusion
Shared Prosperity
Source:
Islamic Development Bank (2015), The role of Islamic Finance in Achieving Sustainable Development Goals.
Available via goo.gl/QUbeIF

13. Sukuk (Islamic Bond) – Innovative Financial Instruments
Two recent examples of Sukuks
Education Sukuk: Khazanah Nasional Bhd's RM100 million seven-year sustainable and responsible investment Sukuk was fully subscribed and it was priced at 4.3% p.a. Inaugural issuance proceeds will be used to fund schools under the Yayasan AMIR Trust School Programme.[7]
Vaccine Sukuks: International Finance Facility for Immunization (IFFIm) issued two Sukuks raising US$700 mn on orders of well over US$1 bn in less than one year to finance child immunization. This high level of demand from both traditional Sukuk investors and conventional investors, including those with a socially responsible investment focus, proves the convergence of Islamic finance and conventional sustainable investing is very possible.[8]
Sources:
[7] Daily Express (2015), Khazanah's RM100m seven-year sustainable Sukuk priced at 4.3pc. Available via goo.gl/f8FoJJ
[8] World Bank (2015). Vaccine Sukuks: Islamic securities deliver economic and social returns. Available via goo.gl/X7keK1

14. Thank You! Prof. Robert G. Eccles Professor, Said Business School,
Oxford University
Chairman, Arabesque Partners

15. ESG for All? The Impact of ESG Screening on Return, Risk and Diversification
A 2016 study by Tim Verheyden, Robert G. Eccles and Andreas Feiner
ESG screening doesn’t hinder performance
A series of tests were devised to investigate whether any fund manager would be disadvantaged by starting with an investment universe that had been screened for ESG criteria
They proceeded by comparing performance of global unscreened universe with a global portfolio that has two different ESG screens
This enabled the trio to come up with conclusions about the effects of such screening on return rates, down-side risks and portfolio diversification
 Thus determining whether and to what extent such screening involves a sacrifice of risk-adjusted returns.

16. Table 5: Summary findings
ESG for All? The Impact of ESG Screening on Return, Risk and Diversification
Conclusions:
Our findings provide almost no evidence that ESG screening reduces returns.
For three out of the four universes we have created, ESG screening not only does not hurt performance, but actually improves risk-adjusted returns.
Positive effect
On the return side, ESG screening adds about 0.16% in annual performance, on average.
No loss in portfolio diversification potential.