Pandemic strengthens sustainability and ESG focus in Islamic finance, research shows

Islamic Finance is set to drive a growing focus on ESG and sustainability in the wider Halal economy, new research with leading Islamic finance professionals shows.

Up to 88% of Islamic Finance professionals believe the growing focus on ESG and sustainability in their industry will mean the wider Halal economy will need to address ESG and sustainability more seriously.

The research was conducted by Maybank Islamic Berhad, the Islamic banking arm of Maybank Group, and IslamicMarkets.com, a leading platform that provides access to expert knowledge and financial opportunities, to support their upcoming forum entitled The Global Connect Forum, with the theme of ‘Driving Sustainable Impact Through Islamic Finance.’

The research was conducted among 143 leading Islamic Finance professionals working across sectors including banking, insurance, asset management, asset ownership, private equity, regulation and fintechs by IslamicMarkets.com during February 2022

APPLYING PRESSURE

Around 54% of those questioned said Islamic Finance industry will place greater pressure on Halal businesses to focus more on ESG and sustainability while 53% said Halal businesses will realise the need to address ESG and sustainability to meet finance requirements.

However more than half (54%) of Islamic Finance professionals say it is becoming increasingly clear that a company’s financial performance is linked to its ESG and sustainability record.

The research found that 25% of Islamic Finance professionals say cooperation between Islamic Finance and Halal businesses has intensified during the pandemic. Around 67% of Islamic Finance professionals questioned said the COVID-19 pandemic had intensified the focus on ESG and sustainability in their organisations which include asset managers, banks, insurers, fintechs and consultancies.

Maybank Islamic Berhad Chief Executive Officer Dato’ Mohamed Rafique Merican said: “The COVID-19 pandemic has highlighted that incorporating ESG considerations into business models is crucial if the Halal economy and Islamic Finance are to maintain their strong growth.

“Islamic Finance is leading the way on ESG, and sustainability and it is clear that it will help the wider Halal economy to adapt and improve its performance.”

Shakeeb Saqlain, CEO of IslamicMarkets added: “Both the Halal economy and Islamic finance are outperforming growth projections but there needs to be a greater focus on ESG and sustainability if current growth rates are to be maintained.”

REGTECH BOOST

The research also showed that fintech and regtech is expected to make a major contribution to future growth in their sector with regtech a ‘potential game-changer’ for the industry.

Around 89% of professionals questioned say fintech has already accelerated digitalisation of Islamic Finance products and made them more accessible globally while redefining client experiences.

However, the research holds out the prospect of regtech – which aims to solve regulatory and compliance barriers using robust digital tools to achieve compliance with Shariah requirements through methods such as smart contracts on blockchain – as having a major impact on growth.

Around one in three (34%) questioned believes the impact of regtech on growth will increase dramatically over the next three years while 47% predict it will increase slightly.

“In common with many sectors, technology is transforming Islamic Finance with fintechs already making a major contribution to growth and accessibility. From the findings of this survey, 43% of the professionals working across a wide range of sectors expect the next three years will see the impact of Islamic fintech accelerating the growth of Islamic Finance in the ESG and Sustainable Investment sector,” Dato’ Rafique Merican said.