Kamis, 24 September 2009

Islamic Finance News: Fresh Fields to Conquer

Dear Ali Sakti,

The action this week has been in the US. It began with a one-day United Nations summit on climate change in New York, followed by the UN General Assembly. As this issue is being published, the two-day meeting of leaders of the Group of 20 developing and developed economies is underway in Pittsburgh, Philadelphia. Remaining on the sidelines was a brief, no-way-forward summit on the Middle East.

While officialdom was clinging to the center stage, the private sector also made waves in the US this week. The gist of the news is that firms are beginning to see climate change as a barrier to profit. Companies are showing increased willingness to disclose the extent to which they are contributing to global warming and what they are doing to keep it from harming their business.

A growing number of firms, including those in the financial sector, have already set emissions reduction targets because they view global warming as a threat to their bottom lines. Their concerns include a potential shortage of raw materials and supply chain disruptions because of severe weather.

For instance, 95% of Levi Strauss’ offerings are made from cotton. Climate-related water shortages threaten cotton supplies, to say nothing of the tornadoes and floods that could threaten the company's cut-and-sew operations in Bangladesh, Cambodia, Vietnam and other countries. Companies that depend heavily on the goodwill of both consumers and their employees are also sensitive to the issue.

This is a real economy issue. Hence, it ought to be the natural playground of Islamic finance. While the lead has been set by companies in the US, opportunities are spawning for Islamic finance practitioners to create new markets and demonstrate innovativeness as well as creativity by riding on this civic conscious drive. For industrialists, how about coming up with financing facilities for carbon emission reduction schemes? In the emerging economies, how about micro financing and other programs to enable cotton farmers, for example, improve their yield and strengthen their economic position?

Ceres, a Boston-based network of investors, environmental organizations and public interest groups, has petitioned the Securities and Exchange Commission to require companies to report climate change risks as part of their regular financial disclosures. "It is such a material risk that it needs to be moved from off the balance sheets into the formal disclosure that needs to be made," said Ceres president Mindy Lubber. "To build our economy, we need to be looking at all the risks and opportunities related to climate and water and other limited resources that we use to fuel our economy."

Islamic finance practitioners should also be looking at these risks and opportunities and exploring ways to create Shariah-based products that have solid standing in terms of firmly entrenched ethics, values and principles.

US corporations are striving to convince lawmakers that capping greenhouse gas emissions and providing money so that vulnerable countries can adapt to climate change makes economic sense. Those active in Islamic finance could join forces with their conventional finance counterparts to likewise drive home this point to their government leaders so that the next time, meetings such as this week’s turn out to be truly meaningful.

Best regards,
IFN team

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