ESG in our DNA

I am delighted with the seemingly exponential growth of environmental and social responsibility consciousness over the last year, as well as the less reported but equally important area of responsible governance. What a healthy contrast to the ‘greed is good’ attitude of the 1980s. But such environmental, social and governance (ESG) considerations are already in the DNA  of the Islamic finance industry.

Businesses and investors are realising that being kind is not a sign of weakness, but a positive attribute to be applauded. We at 90 North adopted early on the brand promise of “Doing great business with a good conscience” and we still stand wholeheartedly behind this.

BlackRock’s announcement in January that sustainability was the “new standard” for investing was a huge affirmation of the momentum behind this global movement, with its World Low Carbon Equity Tracker being the best-selling fund in the UK for January, securing GBP702 million (US$900.17 million) of new capital.

Meanwhile, within the real estate investment management industry, the Global Real Estate Sustainability Benchmark now collects data of US$4.5 trillion-worth of real estate across the globe, with a rigorous and detailed assessment of both the properties and the managers.

Such backing and volumes make sustainable investing mainstream and provides a tangible opportunity for those in the Islamic real estate finance industry to respectfully point out that we have been doing this for years.

From my own experience working on Islamic real estate funds in the noughties, we had a number of non-Islamic equity participants who were drawn to the ethos and risk-positioning of our product. On reflection, we would now identify them as early adopters.

The non-Islamic investors who chose not to invest perceived additional risk, reduced returns or both from the rules of the fund, but re-characterised as ESG principles I believe would now lead to a far more positive response.

Considering a few of the ESG principles that we have adopted at 90 North, I trust that it builds a compelling case for the wider adoption of these, not least as government policies catch up with the sentiment of the population in penalising companies that choose not to be good global citizens:

Environment

• We avoid acquiring properties where environmental issues have occurred or are likely to do so.
• We avoid acquiring properties where the tenant’s activity is likely to damage the environment.
• We prefer to acquire properties that provide best-in-class accommodation, including buildings with ‘Excellent’ or ‘Outstanding’ sustainability ratings from BREEAM in the UK and at least ‘Silver’ LEED-certified in the US.

Social

• We avoid acquiring properties where the tenant’s activity could have a negative social impact and so be subject to adverse government intervention.
• We frequently purchase properties that have a positive social impact, including care homes and student accommodation.
• We engage in frequent tenant liaison to address any tenant issues or wishes.

Governance

• We establish shareholder agreements on transactions that are equitable to all participants.
• Where boards are established for the management of transactions, we ensure that the board members have the necessary skills to fulfil such a role.
• We are transparent in all aspects of our business dealings.

Those in the UK may be familiar with Julian Richer, or at least his Richer Sounds chain of hi-fi and television stores. His book ‘The Ethical Capitalist’ from 2018 is highly recommended, in which he comments: “In my view, it’s possible to run a company both successfully and ethically. In fact, I’d go further. My own experiences in the business world suggest that an ethical approach, far from being a potential barrier to profits, is actually the secret to success.”

The world has realised that ethics matter. Time for the Islamic finance industry to shout: “We agree!”

This article was first published in Islamic Finance news dated 11th March 2020.