TVM Capital Healthcare embodies strong commercial value creation with responsible investing to build sustainable, well-governed healthcare companies in the MENA and Southeast Asian region. In pursuit of this double bottom line objective of doing good and doing well, the firm has implemented an ESG framework on fund and portfolio level from 2012 onwards. However, there was a time when Responsible Investment and Shari’a compliant investing have been seen as investment limitators. Clearly investors’ mindsets have changed and the current tightening in fundraising, coupled with the multifold increase in available ESG and Shari’a compliant targets, has allowed prominent investors to seek and advocate for responsible investments (be it secular – based solely on ESG principles – or Shari’a compliant).
The convergence of both Responsible Investing and Islamic Finance lies in appreciating that the values that drive investors, irrespective of their faith, often lead to similar goals. Both, a Responsible Investment approach, and Islamic Finance models, aim to create societal benefits and actively avoid public harm all the while generating economic growth. This fundamentally intrinsic convergence is causing more engagement towards widely accepted standard methodologies, including screening criteria. Islamic Finance’s screening criteria are complemented by a set of principles that may as well be used by non-Shari’a compliant companies to evaluate the societal impact of an investment. Islamic Finance is gradually paying more attention to areas where financial institutions can act to encourage what is right within their own defined theological sphere, hence stressing on positive (as opposed to a mere negative) screening. Therefore, certain Islamic Finance institutions are now consciously incorporating climate concerns into their Shari’a compliant products based on the fundamental principle of stewardship where humans are entrusted with the Earth by God and must therefore protect the environment.
Fund managers and lenders who understand the needs of different categories of investors will reap the fruits of their agility. They will nonetheless need to factor in strategies to effectively monitor Responsible Investment and Shari’a compliant investment restrictions as scrutiny on compliant investment is becoming tighter. The subject of Responsible Investing has won tremendous trajectory, attention, not least thanks to the advocacy of the U.N PRI and other bodies, who advocated for standards and measures, which currently are in a process of being standardized and expanded globally – and someday financial reporting, ESG or Sustainability Reporting, will have merged completely. This holistic view on investing ultimately serves the aim to create societal benefit, actively avoid or minimize environmental impact – which is in the core interest of responsible and Islamic finance investors alike. Some would call that a win-win situation.