Professor Mehmet Asutay is the Director of Durham Centre for Islamic Economics and Finance, United Kingdom (UK); and is the Programme Director for MSc in Islamic Finance and MSc in Islamic Finance & Management; and also, the Director of the Durham Islamic Finance Summer School. He is the Managing Editor of the Review of Islamic Economics; is an Associate Editor of the American Journal of Islamic Social Science; and is on the Editorial Board of International Journal of Islamic and Middle Eastern Finance and Management and of Borsa Istanbul Review. Finally, Professor Mehmet Asutay is the Honorary Treasurer of the BRISMES (British Society for Middle Eastern Studies); and of the IAIE (International Association for Islamic Economics). The following are excerpts of his interview on environmental, social and governance (ESG) criteria, sustainable development goals (SDGs) and Islamic finance.
1. Researchers have found that ESG and Islamic finance share lots of commonalities in terms of social welfare reflected in zakah, community development programs, negative screening strategy for harmful sectors/companies, etc. How can they join forces to exploit the obvious synergies between both?
In responding to this, first we need to make a conceptual clarification. ESG, SDGs and similar movements should be appreciated for trying to overcome the economic, financial, social and environmental problems engulfing us all over the world. However, a close political economy analysis indicates that such policies, which aim at correcting market failures caused by excessive capital accumulation and financialisation as a result of neo-liberalism, are second- or third-best solutions. They are protectionist movements to rescue land, labour and capital within the same paradigm, namely neoliberalism, that has caused such problems. It should be noted that such positive expectations in relation to social, economic, environmental consequences are, however, embedded within the value system of Islam. This is essentialised by the axioms of Islamic moral economy, such as tawhid, rububiyah, tazkiyah, ‘adalah and amanah leading to ihsani social capital in bringing out a balanced society – balanced between all the stakeholders. Such as the case that maqasid al-Shariah essentialises well-being as an outcome of any action including economic and financial activities. Thus, there is an essential philosophical and paradigmatic difference between the origins of such movements and the origin of Islamic finance.
Having said that, we have now accepted the social failure of Islamic banking and finance, which has been officially evidenced by Malaysia’s new movement of Value-Based Intermediation (VBI) in Islamic finance. So, we have to recognise that the deviations caused by the operation of Islamic finance in relation to the expected or aspired paradigmatic knowledge, theory and institutional emergence have to be corrected. It seems that in the correction process, we again have to mimic, this time in a positive manner, the solutions of the neoliberal economy by bringing ESG and SDGs into the operations of Islamic banks and financial institutions to correct their failures. Considering that such new paradigms suggest much more comprehensive strategies than your stated zakah, community development programs, negative screening strategy for harmful sectors/companies, etc., within the existing institutional logic of Islamic banking and finance, we need to endogenize ESGs and SDGs so that some of the expected (Islamic) outcomes can be generated.
What is important to emphasise is that in this process, Islamic finance has to learn about positive screening from such movements beyond the confining Islamic finance fiqhi-oriented negative screening. Such movements are the product of a particular morality (that is secular), yet they have evolved such qualities that we want Islamic finance to subscribe to. This strongly suggests that in order for Islamic finance to move into positive screening as a next stage of development, along with the negative screening paradigm used so far, Islamic substantive morality must be brought back into Islamic finance operations and the institutional logic it has borrowed from neoliberal banking, so that embedded solutions can be developed. Therefore, it seems that the causality of impact will now run from ESGs-SDGs towards Islamic finance, even though from the outset we had hoped for Islamic finance to impact conventional finance to develop a moral paradigm for them to subscribe to.
In short, despite such important ontological differences and important consequential differences, subscribing to ESGs-SDGs will help to overcome the observed failure of Islamic finance. The Islamic economics and finance movement seems so committed to capitalist institutional logic that we are still stagnant in developing our authentic solutions. Until then, ESGs-SDGs will provide positive screening and a consequentialist strategy for Islamic finance to develop in a positive manner beyond fiqhi-oriented positioning, which has excluded substantive morality from Islamic finance as it has been following the neoclassical approach of excluding ethics from its analysis. However, we should not lose sight that our objective is to develop an embedded system and institutions – embedded in the value system of Islam, which by definition requires social optimality as well.
As a practical note, some of the features that you have identified in your question (such as zakah, community development programs, negative screening strategy for harmful sectors/companies, etc.) can help to substantiate some of the ESG-SDGs and hence can create commonalities, but I feel that Islamic finance has to learn a great deal from these movements in correcting its own failure. As beyond negative screening, Islamic finance has not been present in community development, and zakah has been outside of its territories.