• Friday, June 21, 2024

Sponsored Feature

Casting an eye over ethical investments

By: Shoaib Bux, director and co-founder of Autarky Sukuk

Whether it’s saving up to buy a home, putting money aside for a comfortable retirement or just building a nest egg, the urge to save is strong and universal.

People have always saved, even if the growth of the financial services industry means savers now have a bewildering array of options – many of which can be done from the comfort of your laptop or even an app on your phone.

But alongside the explosion in choice, in recent years there has been a sharp increase in the number of savers wanting more from their investments than just a healthy return.

The financial industry has responded to this demand by creating a range of products badged as ‘ethical’ investments, and coining a raft of acronyms like ‘ESG’, which stands for Environmental, Social and Governance and is a set of standards measuring a business’s impact on society, the environment, and how transparent and accountable it is.

But in truth ethical investing is not new. It has always been the guiding principle of Shariah-compliant investing – a code of practice Muslims have followed for centuries that ensures their financial decisions align with their values and have a positive impact on society and the environment.

It also sits at the heart of what we do at Autarky Sukuk. Our experienced team is committed to helping our clients invest responsibly, securely and sustainably, safe in the knowledge their investment will generate a strong return while also complying with Shariah rules.

And here’s the interesting thing. While we built our business with Muslim investors in mind, the innovative financial instruments we’ve developed now appeal beyond the Muslim community. Our sukuk – an ethical, efficient way to invest – is attracting investors from across the board.

The principles of Shariah-compliant finance

Shariah-compliant finance is guided by the principles of Islamic law, which encourage ethical behaviour, social responsibility, and the avoidance of harmful practices. This includes the prohibition of interest charges (riba), which are considered an unjust form of wealth accumulation. Instead, risk-sharing between parties is promoted, fostering transparency and fairness. Shariah finance uses equity-based instruments that are backed by ownership of tangible assets and real economic activities, avoiding excessive speculation.

In addition, investments must comply with Islamic values, avoiding harmful industries like gambling, weapons, alcohol and tobacco. Autarky Sukuk screens investments to make sure they abide by these strict criteria. By adhering to such principles, our investment choices align financial decisions with ethical and sustainable practices based on UK real estate.

Where Shariah-compliant investing and ESG meet

While rooted in Islamic teachings, Shariah finance’s principles resonate with anyone looking to invest money in areas that promote responsible business and take into account societal and environmental impacts. That’s why our team at Autarky Sukuk have worked with clients of all faiths for many years.

Our main focus is on providing ethical finance secured on UK real estate to customers who add value often by refurbishing property. The UK has a chronic housing shortage, with thousands of people dreaming of owning their own home. By providing Shariah-compliant finance to responsible property developers and builders, Autarky Sukuk is helping to get more homes built – and doing its bit to help young families get onto the property ladder.

At the same time, homes are the world’s biggest and best-known asset class. In the UK, residential property has proved one of the most reliable investments too, producing steady returns for investors over time.

What is a sukuk?

We created our sukuk to allow investors to invest in property development and renovation in an ethical, Shariah-compliant way. A sukuk is an Islamic financial certificate that adheres to the principles of Shariah law.

It serves as an investment vehicle that provides capital towards purchasing or investing in Shariah-compliant assets. But rather than receiving interest payments like a conventional bond, investors are issued sukuk trust certificates. These certificates represent an undivided ownership interest in the underlying assets – properties in our case – proportionate to the value of each investor’s contribution.

The sukuk certificates entitle their holders to receive a pro rata share of the cash flows or revenues generated by the assets invested in. For example, if the sukuk is financing a property that’s let out to tenants, certificate holders would receive their share of the rental income from that property.

Sukuks facilitate investment in ethical, Shariah-compliant projects and assets while providing investors a stake in the associated revenue streams. This model promotes risk-sharing between the sukuk issuer and investors in accordance with Islamic finance principles.

Overall, sukuks represent an innovative way to enable Shariah-compliant investing and financing. A total of 68 separate sukuks are currently listed on the London Stock Exchange, with more than $50 billion in investment raised.

The benefits

Combining Shariah principles and ESG offers benefits for values-aligned investors, whatever their faith.

In addition, investments made through Autarky Sukuk meet both ethical Islamic and ESG standards, promoting sustainability. The risk-sharing offered by the sukuk structure reduces excessive speculation and uncertainty, while the adherence to Shariah principles also gives investors access to a wide range of assets and industries that might be overlooked by conventional investments.

In addition, investments made through a sukuk are directed towards companies and projects that contribute positively to society and the environment, creating a virtuous cycle of sustainable growth and development.

The future of ethical and socially responsible investing

As concerns about climate change, social inequality and corporate governance issues continue to grow, the demand for ethical and socially responsible investing is likely to increase – and with it demand for Shariah-compliant investing.

According to the London Stock Exchange Group, Islamic banking assets totalled $2.8trn (£2.3trn) in 2021, and they are projected to hit $4trn by 2026.

Shariah-compliant ethical investing offers a compelling solution for investors seeking to combine financial returns with ethical and sustainable practices. By embracing the principles of Islamic finance and ESG investing, this approach has the potential to drive positive change and contribute to the creation of a more sustainable and equitable future for all.

If you would like to find out more about how you can make ethical investments or how Shariah-compliant finance works, you can contact the experts at Autarky Sukuk by emailing your query to [email protected] or by calling us on 020 3007 5511.

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