Making sustainability work for OIC financial institutions & Islamic finance
Systemiq, a company focused on promoting systems change work, has released its “Blue Whale Inquiry” seeking to combine insights into the current challenges facing sustainability gathered from 50 leaders. The resulting report outlines a range of changes across business, governments, NGOs and the financial sector to reinvigorate sustainability for the next stage of advancement towards global goals. It also includes a frank discussion of the challenges, but also potential breakthrough areas where past efforts could bear fruit even in an environment full of headwinds.
For the financial sector, three of the key catalysts highlighted are breaking the hold of short-term financial returns on decision-making, leadership among the Global South countries through adoption and delivery on more sustainable economic models, and the use of technology including AI to avoid “being trapped in an acronym-heavy compliance regime” that has developed within ESG.
Many of the necessary changes have been identified before. It remains true that they need to be tackled, but there is significant inertia that slows progress in deviating from the paradigm where worldly wisdom often values conventional failure over unconventional success. Likewise, there have been recurrent examinations of the problem of the high cost of capital for climate & SDG action in emerging markets & developing economies, and the debt distress that many countries experience as a result, even while the problem continues to be perceived as intractable.
As has been experienced in Islamic finance, there are often times when the most effective approaches to scale up an alternative to the current system eventually run into the headwinds of trying to compete on the incumbents' playing field. The thesis of the Blue Whale Inquiry is that the points where progress seems most difficult to achieve can also be the most fortuitous place to be working in when unanticipated major shifts are underway, as they are today.
The current dynamics in the global system are characterised by rapid shifts in the standalone viability of new sustainable energy systems, a rapid unscheduled disassembly of the unipolar order, and the introduction of AI technology that can widely disperse information with few limitations on access or use, for good and bad. The slipping of tectonic plates in the global order, and the reflexive rush towards seeking out security, are producing contradictory movements but allow a much greater range of action than is typically seen. These shifts often impact issues where the deadlock appears strongest, where the most effort is concentrated on change and resisting change.
All of that is to say to the financial sector, and particularly institutions from emerging markets & developing economies, and within Islamic finance, that there is little to be lost from making a renewed push towards the changes that have long been sought out. Contradiction between a desired outcome and the value(s) that finance often elevates has produced a stalemate, but there is no reason to believe these problems will always remain hardest to unknot.
For financial institutions in OIC markets seeing recalibration of externally imposed sustainability disclosure standards, there may be value in concentrating efforts on practices that provide a better balance between investor expectations and other stakeholder needs. For Islamic finance, the greatest opportunity may lie in leaning into the discussion of ethics that other financial sector stakeholders are wary of tackling. It may be more advantageous to be able to talk authentically about ‘just’ outcomes as the economy-wide transition accelerates, as our planetary debts come due.
Many of these same hopes and aspirations were brought into the mainstream as Covid swept around the world, only to be seemingly dashed by the desire to resume ‘normal’ life as the economy reopened. Yet at the same time, many of the features which made that previous inflection point come and go may have left changes that will enable future change.
For example, climate impacts seem much more ‘here and now’ rather than in the distant future, as they did during the past decade. Electrification and clean energy have gained a significant foothold as being economically competitive if not outright advantageous. Technology – not least around AI – has become ubiquitous where it previously seemed distant.
This is no guarantee that we will look back at today as representing a positive inflection point on the road towards restoring the balance between humanity, nature and the climate. But there is still more to be gained by being ambitious in pursuing delivery rather than being hesitant and maintaining the path for responsible finance as a disclosure and compliance effort.
