Your Highnesses, Excellencies, Ladies and Gentlemen, As-salamu alaykum. I can only say how very touched I am to have been asked to say a few words this evening. As I am sure you will have gathered during the day, you could not be more welcome to the United Kingdom for this, the first time the Forum has been held in Europe – which is, perhaps, a sign of London’s growing importance as a hub for Islamic Finance in the West – and I would like to add my greetings to those of the Prime Minister and your other distinguished speakers. I would also like to thank the Muslim Council of Britain, which I know has been much involved in the W.I.E.F. and the issues of Islamic Finance for so many years.
If I may say so, you are meeting at an opportune moment and your efforts to establish bridges between cultures and countries could not be more important. We are currently confronting challenges that will define our civilization, not least the wise management of our planet in the face of climate change, the depletion of natural capital and a rising population. Given that, in the next two years, the world’s governments must agree on Sustainable Development Goals and finally conclude negotiations on the whole issue of climate change, working together will be more crucial than ever and I can only thank you for your efforts in helping that to happen. If we are to take proper account of the uncertainties and risks that come with the rapid changes we are seeing in our ever more interconnected world, then collaborative efforts will be key and meetings like this are vital in establishing the dialogue and trust we need for success.
You will have had, and will no doubt be having, extremely technical presentations and discussions about the benefits of Islamic Finance – or Alternative Finance, as it is also known – and its place alongside the many and varied activities of ‘conventional’ finance. You will, perhaps, be relieved, then, that, as an historian, I am not going to presume to delve too deeply into the intricacies of collaterized bond obligations or the challenges implicit in Basel III or even Solvency II; but it seems to me that much of the debate in the wake of the financial crisis of 2008 has centred upon knowing your risk and acting appropriately. It is important, therefore, to identify the kinds of hazard that can engulf us if we dismiss warnings just because they have not been forensically quantified, or because we think they lie too far in the distant future, perhaps as far ahead as the next quarter!
I was particularly struck by a sentence in your programme – the assertion that we grow so accustomed to being guided by our old economic models that we fail to notice they do not really describe the way the world actually works. That is quite a problem! And yet it is true. We are now grappling with all sorts of social and economic challenges that have their roots in a problem not acknowledged, which has contributed to so many of the conflicts around the world in recent times. And that is the way Nature’s capital reserves have been depleted; things we take utterly for granted like water and soils. If these deteriorate and are not managed on a sustainable basis, this can cause direct impacts on food and energy security. The tragic conflict in Syria provides a terrifyingly graphic example, where a severe drought for the last seven years has decimated Syria’s rural economy, driving many farmers off their fields into the cities where, already, food was in short supply. This depletion of natural capital, inexplicably little reported in the Media, was a significant contributor to the social tension that exploded with such desperate results.
The recent Fifth Assessment Report from the Intergovernmental Panel on Climate Change contained an explicit warning of what could happen if we don’t more effectively sustain our environment. To do this, we must establish new business models and financial structures that incorporate the needs of the Earth. These fundamental considerations cannot be left out of the economic equation, as they are, in the main, at the moment. Seeking economic opportunities for profit alone, without taking account of, and managing, foreseeable risks, appears to be an increasingly unwise course of action.
It is a complicated conundrum, complicated not just by the global population getting bigger, but also by it getting richer, although tragically in some instances the disparity between rich and poor is also growing. The extra strain this is already placing on natural resources is immense, whether it be the health of fish stocks, the fertility of farmable soil, the supply of freshwater or the abundance of forests, and this, in turn, puts pressure on supply chains and leads to serious price volatility in key commodities. And then there is the impact of extreme weather which is, among other things, leading to a steady rise in the cost of insured losses as well as many who face ruin because their losses are uninsured or, indeed, uninsurable. So, as I am sure you can see, the depletion of the Earth’s natural capital – particularly water – is of huge strategic importance, both for business success and for economic stability.
However, the truth is that for many senior executives these risks seem hardly to register. This might be considered surprising, given how we are still grappling with the consequences of the last occasion when the financial community failed to take seriously many well-founded warnings of systemic risk. But, as the work of my Accounting for Sustainability Project has shown, as long as natural capital is considered separate from, rather than fundamental to, financial capital, these hazards will remain obscured.
Where, then, might the solutions lie? It is clear from the Koran and, indeed, from the Bible too, that humanity has a sacred responsibility for the stewardship of the Earth. The time has surely come for our financial institutions to recognize that the Earth is not a limitless resource that can be plundered at will, and to integrate that principle of stewardship into our financial structures. This is where I believe the World Islamic Economic Forum and Islamic – or “Alternative” – Finance can make a significant contribution. What interests me is that it is based on very important teachings at the heart of Islam – the notions of “unity through diversity,” of equity and compassion, as well as the requirement for natural capital to be properly acknowledged.
The perils faced by financial and business organizations are not somehow ring-fenced from the rest of the population, so it is surely a good idea to explore how the spirit inherent in the “moral economy” of Islam could enable a just and ethical approach towards the management of systemic risk in economics, in business and finance – the way risk-sharing, implicit in Musharaka, works, for example, with lenders sharing the borrower’s risk, and the notion of Mudharabah, the sharing of profit. This is very different from the way that conventional finance transfers the risk quickly and frequently onto someone else with profit going just one way.
There is also a welcome emphasis implicit in Islamic Finance on the real economy, and the idea that finance cannot be divorced from wider ethical and moral codes. So, I wonder, is it possible to build financial and business models that seek to share risk more fairly, between our and future generations, between rich and poor and between financial organizations and society? As it stands, I suspect that if the strict injunction of the Qur’an against Riba were to be applied to the economic system that prevails at the moment, then the debt we have effectively incurred for future generations by the depletion of the Earth’s natural capital would surely be found to be usurious and profoundly unacceptable.
This is why financial and business organizations that keep to the principles embedded within Islam could be helpful in forging a more ethical approach that leads to equitable outcomes, improving the prospects for successful business and financial stability as it does so. In fact, scaled up, these ideas could help the world achieve a very important realignment whereby effective management of the many threats now besetting us results in more successful – and, crucially, more resilient organizations.
So I hope you can see why it is my fervent hope that the organizations you represent grasp the opportunity to use capital to pursue a better balance. Imagine, for example, if a really significant effort was made to research and invest in renewable technologies, such as anaerobic digestion, for instance, at scale. At the moment, for every one dollar invested in renewable energy in O.E.C.D. countries, seven dollars are spent on carbon-intensive fuels. And yet, experts have told me that at least 500 billion dollars could realistically be mobilized each year if sovereign wealth funds and other asset managers decided to refocus their investments in ways that may avoid assets becoming stranded. At the moment several trillion dollars go into the oil and gas sector every year, even though the experts warn they will become, almost by definition, “stranded assets.” This is because their wholesale use would ultimately destroy us, so their current assumed value can never be realized.
If I may say so, I can only applaud your efforts this week to refine ideas and conceive strategies that will be good for the future of business and finance, but at the same time, surely, they must also be focussed on those people and their communities that business and finance serve. And so, with that in mind, I would like to leave you with two questions if I may.
Given that the world’s already depleted natural capital is subject to ever rising demand, I wonder, firstly, whether you have the criteria in place, the structures and tools, to enable the effective management of the emerging threats I have mentioned? And, secondly, can you actively consider how the vast financial resources that your organizations manage could best be deployed to reduce the systemic risks and deliver better education and vocational training to create jobs and small enterprises?
Ladies and Gentlemen, if I may say so, we are obliged to succeed. To fail would be catastrophic. It has been one of Islam’s great strengths over the centuries that it is compelled to establish a just society. Never has there been a greater need to raise the level of that ambition to a global level. We each have a sacred duty of care towards the Earth. It calls upon us to shoulder this work together. Your meeting here in London can, and indeed must, be a vital part of this endeavour.