FaithWorld

from Global Investing:

How socially responsible is your investing?

Is your investment ethically sound and socially responsible?

A new survey by consulting firm Mercer finds that only 9% of more than 5,000 investment strategies achieve the highest environmental, social and governance (ESG) ratings.

Socially responsible investing (SRI) involves buying shares in companies that manage ESG risks. For example, firms that make clean technologies are favoured, while businesses which pollute the environment, are complicit in human rights abuses or nuclear arms production are shunned. All this sounds good, but the performance of such investments has been somewhat mixed -- meaning being good doesn't always mean doing well. But the SRI industry is hoping that greater involvement of funds, especially long-term ones such as pension funds and sovereign wealth funds -- may generate flows into the sector and lead to better performance.

Of the 5,175 strategies assigned ESG ratings, 57% are in listed equities, 20% fixed income and the remaining 23% across real estate, private equity, hedge funds and others.

Private equity has the highest proportion of highly rated ESG strategies, while hedge funds and fixed income had the fewest. From a geographic perspective, emerging markets and Asia-Pacific have the highest proportion of top ratings, while Canada -- and this may come as a surprise to some -- has the least.

“There is still much work to be done by the investment community to fully integrate responsible investment practices. We would expect the number of highly rated strategies to increase over the next few years as more and more investment professionals come to recognise the sound investment and competitive reasons for active ownership," said Andrew Kirton, Mercer’s global chief investment officer.

International investors fear anti-market regime in Egypt

cairo bank

(People queue to make withdrawals outside Cairo Bank in downtown Cairo February 6, 2011/Amr Abdallah Dalsh)

International investors fear protests against Egypt’s President Hosni Mubarak could spill over to other Arab countries, leading to regimes more hostile to western investment practices in the region and the introduction of more Islamic economic rules. They also express concern about the future role of businesses run by Coptic Christians in Egypt.

“Egypt has long been one of the most tolerant countries toward multiple faiths (in the Muslim world),” said Donald Elefson, co-lead portfolio manager at Harding Loevner Funds, with $210 million under management. “The Coptic Christians are still very powerful, though they are a minority, and there are many large-scale businesses that are owned by Coptic families. The only risk for the business environment would be if Egypt becomes a sharia state.”

Islamic finance in Gulf needs regulation boost

karachi marketFrom Australia to South Africa, governments are scrambling to change the law to accommodate the $1 trillion Islamic finance industry, whose avoidance of toxic debt has looked increasingly attractive since the global crisis. But in the Gulf Arab region, birthplace of Islam and cradle of Islamic finance, governments have taken a more passive approach, which experts say is slowing the industry’s growth. (Photo: A broker at the Karachi Stock Exchange July 5, 2010/Athar Hussain)

“Aside from Malaysia, Sudan and Iran, no government has really owned the Islamic finance project,” Humayon Dar, chief executive of London-based sharia advisory and structuring firm BMB Islamic, said.

In Malaysia, there is a national sharia council that sets rules for Islamic financial institutions. Rules are standardised under the central bank, which has made an active push towards supporting Islamic finance. In the first three quarters of 2010, the Malaysian government accounted for 62.5 percent of all Islamic bonds, or sukuk, issuances globally, valued at $18.4 billion, according to Thomson Reuters data. By comparison, not one sovereign sukuk came out of the Gulf Arab region during the same period.

Islamic finance outsources scholars’ supervision to grow

finance ammanBankers in Islamic finance are increasingly outsourcing sharia supervision due to a lack of scholars in the industry, but critics say this is making the sector even less transparent and slowing its development.

The $1 trillion industry rode a five-year oil boom until the 2008 property crash in the Gulf Arab region raised complaints that many of its investment instruments can be seen as mere copy-cats of conventional banking products, threatening the sector’s future growth. (Photo: Dealers at the Amman Stock Exchange on October 11, 2010/Ali Jarekji)

Critics say growth and product innovation is being further stifled by the limited number of top scholars available to join the sharia boards of Islamic banks, some sitting on up to 80 boards.

Mideast banks, funds seek to tap Muslim women’s wealth

women banking (Photos: One of Dubai Islamic Bank’s women-only branches in Deira, October 26, 2010./Jumana El-Heloueh)

Emirati housewife Sarah Alzarouni brushed past a group of women clad in floor-length black robes, some with only their eyes showing, to enter through the frosted doors of one of Dubai Islamic Bank’s women-only branches. Clutching a Louis Vuitton bag to match her designer head scarf, Alzarouni greeted the female tellers and bank manager with three kisses on the cheek and sat down to do business.

“I am much more comfortable working with ladies than in a mixed environment,” Alzarouni, 27, said. “When I come here, I feel like one of them. They understand my needs and I can move freely, not having to always think where I am and whether my (scarf) has moved. As a Muslim, it is really important for me to deal with an Islamic bank. “

Many affluent Muslim women share Alzarouni’s sentiments and they are increasingly turning to Islamic banks to manage their money. These women are looking beyond basic banking services to sophisticated products to grow their wealth while complying with Islamic principals that include a ban on interest.

Islamic finance relies on too few of its scholars

saudi traderThe Islamic finance industry is not short of qualified sharia scholars to meet growing demand, but it relies too heavily on a handful of them, limiting growth potential and raising regulatory concerns, experts say.

Islamic finance experts have previously said the nearly $1 trillion industry is struggling to find scholars with the business acumen, technology and language skills necessary to help the sector evolve. (Photo: A trader at the Saudi Investment Bank in Riyadh, March 18, 2008/Fahad Shadeed)

But consultancy Funds@Work found that more than 300 scholars sit on the sharia boards of Islamic institutions. However, it said that just 20 of these scholars appear on 54 percent of such boards.

Sharia boards face scrutiny amid financial crisis

bank sharia

A teller at Bank Syariah Mandiri in Jakarta February 17, 2010/Supri

Sharia boards face increased scrutiny and criticism as high-profile corporate defaults and cautionary comments from respected scholars cast a harsh light on the fast growth of financial products touted as Islamic.

Experts say rapid growth in the industry, which some estimates value at around $1 trillion, has put more pressure on scholars to sign off on increasingly complicated structures, wrapped in sharia packaging.

“In areas that have to do with capital guarantees, fixed income and derivatives … 40 to 50 percent of what’s being sent out is form over substance,” said Jawad Ali, managing partner at Dubai-based law firm King & Spalding.  “Mistakes do happen when a sharia board focuses on the instrument being presented … and there is little scrutiny on how the structures are being implemented.”

Indonesia’s sharia push may scare investors, moderates

indoensia-shariaRecent moves in Indonesia, including plans by one province to stone adulterers to death, have raised concerns about the reputation of the world’s most populous Muslin country as a beacon of moderate Islam.

The provincial assembly in the westernmost province of Aceh — at the epicenter of the Indian Ocean tsunami that killed 170,000 people there nearly five years ago — this week decreed the ancient Islamic penalty of stoning to death for adultery. (Photo: Indonesian Muslim women support sharia, 19 Sept 2006?Supri Supri)

The decision could still be overturned once Aceh’s new parliament is sworn in next month. But many, including Aceh’s governor, the central government in Jakarta, and local businessmen, are concerned about the impact a broadcast public execution by stoning could have on Indonesia’s international reputation.