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In the rapidly evolving financial landscape, a discernible transformation is taking place within the investment industry, spurred by a growing emphasis on ethical considerations. Stakeholders across the spectrum are showing an increasing inclination towards investments that not only yield financial returns but also contribute to positive societal and environmental impacts.
This paradigm shift is prominently reflected in sectors such as sustainable agriculture, renewable energy, and climate action. Delving into these trends provides a deeper understanding of the profound changes shaping the investment sector as it embraces a more ethical and sustainable future.
Rising awareness and enthusiasm for ethical investing: In recent years, ethical investing has gained momentum as a growing number of individuals seek to align their investments with their personal values. Investors are increasingly recognizing the potential for financial growth while making a positive impact on society and the environment.
The surge of sustainable and responsible investment (SRI) funds: The financial world has witnessed a substantial increase in the popularity of sustainable and responsible investment (SRI) funds. These investment vehicles are designed to cater to ethical and sustainable investing, and their proliferation is expected to continue. Regulatory bodies are also taking note, expanding their oversight and creating an environment conducive to this growth.
- In 2014, the Securities Commission Malaysia introduced the Sustainable and Responsible Investment (SRI) Sukuk Framework to facilitate sustainable investment financing.
- In 2017, Indonesia's Financial Services Authority (OJK) introduced the Regulation on the Issuance and Terms of Green Bonds to promote environmentally friendly capital market products. As of December 2021, the global sustainable bonds market had exceeded USD 1 trillion, with USD 118.8 billion in sustainability-linked bonds.
- In 2022, Kuwait amended Module 11 of the Capital Markets Law to regulate green, sustainability, and social-impact bonds and Sukuk. Qatar introduced the QFC Sustainable Sukuk and Bonds Framework.
- The United Arab Emirates (UAE) launched the Sustainable Finance Framework 2021-2031.
- In 2011, Bangladesh introduced the Bangladesh Bank Policy on Green Bond Financing for Banks and FIs.
- Malaysia's Securities Commission (SC) unveiled the Sustainable and Responsible Investment linked (SRI-linked Sukuk Framework).
Growing emphasis on environmental, social, and governance (ESG) criteria: Ethical investors are increasingly relying on environmental, social, and governance (ESG) criteria to inform their investment decisions. These criteria evaluate a company's sustainability and ethical performance, reflecting the growing importance of ESG considerations in investment choices.
Islamic finance aligns with the principles of sustainability and ESG, emphasizing stewardship, social responsibility, and ethical conduct. Islamic finance holds significant potential on a global scale in terms of sustainability and ethical finance. The Islamic economic model promotes fairness, informed decision-making, and social justice, aiming to reduce wealth concentration for the betterment of society.
Ethical investing goes mainstream: Ethical investing is no longer confined to a niche market segment. It has transcended its niche status and is becoming an integral part of mainstream financial products and services. This integration is expected to continue as more investors seek ethical opportunities and financial institutions expand their offerings in this arena. Ethical investing is no longer an exception but a standard practice.
The financial industry is undergoing a profound transformation, driven by a growing awareness of ethical considerations and a desire to invest in a manner that aligns with personal values. The convergence of ethical investing and mainstream financial markets is not merely a trend but a permanent shift in the landscape of financial investments.
The writer is the additional managing director and chief credit officer of The Premier Bank PLC. He is a fellow member of the Institute of Cost & Management Accountants of Bangladesh (ICMAB) and the first Certified Sustainability Reporting Assurer (CSRA) in Bangladesh. He is also a post-graduate diploma in Islamic Banking & Insurance (IIBI), United Kingdom