The Conference of Parties (COP) is the annual United Nations Climate Change Conference that started running in 1995. The purpose of this conference is to assess the progress made by signatories to the United Nations Framework Convention on Climate Change (UNFCCC). The upcoming COP is COP28 which is scheduled between Thursday, 30th November 2023, and Tuesday, 12th December 2023.
COP28 is poised to become a critical milestone for global cooperation, one with a clear aim of aligning climate action with the availability, affordability, and accessibility of finance. In the lead-up to COP28, the COP Presidency has been notably attentive to an array of financial challenges confronting the Global South. Insights from Dr. Al Jaber’s discussions with delegates shed light on issues spanning limited access to climate finance and funding insufficiency to capacity limitations, uncertain revenue streams, and the weight of high transaction costs.
Amidst these challenges, the prominence of Islamic finance within the Global South emerges as a beacon of opportunity. This owes to the harmonious alignment of Islamic principles with ethical and socially conscientious values positioning Islamic finance as a significant catalyst for overcoming these financial hurdles.
Despite the inherent alignment of Islamic principles with ESG values, there remains a disconnect between Islamic financiers’ investment practices and ESG investments. This can be attributed to their distinct theological foundations, sector focus, and differences in language. While Islamic finance adheres to Shariah principles, guiding permissible (Halal) and forbidden (Haram) activities, ESG investment encompasses a broader range of sustainability factors beyond those explicitly addressed in Islamic finance. Additionally, differing geographical prevalence and evolving awareness contribute to the gap. This was highlighted in the Islamic Finance and the UN SDGs – Retail banking customer perspectives Global Survey 2023 report. However, at the core of these differences lies the absence of specifically tailored guidance for Islamic finance institutions compared to their conventional financial counterparts, which has magnified what is known as the Halal-Tayyib gap in Islamic finance.
Islamic finance, in its true essence, does not only avoid forbidden activities (Haram) but also actively encourages endeavours that are wholesome, pure, and beneficial for individuals and the environment (Tayyib). This is based on the idea that there are distinct gradations within Fiqh (Islamic Jurisprudence) and the Quran beyond simple compliance of “Halal” or “Haram”.
Inspired by the notion of Tayyib, Islamic Finance Council UK (UKIFC) and the Global Ethical Finance Initiative (GEFI) will formally launch Project Tayyib at the COP28 Summit in Dubai this December. The project seeks to introduce a verification kitemark that seamlessly melds established Shariah-compliant practices with considerations of climate resilience, biodiversity preservation, human rights, and other critical ESG factors. Shaped by extensive market analysis, Project Tayyib focuses on four asset classes – capital markets, debt, real estate, and private equity.
The Islamic finance market’s impressive global worth, standing at $4 trillion and experiencing consistent year-on-year growth, represents an untapped source of capital that could significantly contribute to funding the transition towards net-zero emissions and the achievement of the UN Sustainable Development Goals.
The scope for unlocking substantial market opportunities through this alignment is also significant. Notably, ESG investing is projected to surge by 84%, surpassing $30 trillion by 2026, in parallel with Islamic finance’s anticipated growth to $5.9 trillion. While currently only 5% of sukuk issuances align with green or sustainable criteria, the evident demand for such products is compelling. The UKIFC envisions a potential influx of $30 billion through the green and sukuk (Islamic bonds) market by 2025.
By harmonizing the burgeoning Islamic finance and conventional finance sectors inclusively, Project Tayyib holds the promise of fostering a broader positive societal impact. As the COP28 climate summit approaches in the UAE—a hub for Islamic finance—the prominence of the Tayyib Project grows, poised to mark a significant stride towards effecting transformative change at the convergence of finance and sustainability. The sector’s engagement at COP28 will offer an opportunity for the industry to extend its commitment and bring its unique perspective and sustainable financing models to the global conversations.
Learn more about being a part of the Unlocking Islamic Finance Summit at COP28 here, and explore GEFI’s Path to COP28 programme here.