Adnan Halawi is senior proposition manager for Islamic Finance at the London Stock Exchange Group (LSEG), where he heads product development of all Islamic finance products and apps on Refinitiv Workspace and EIKON, including Sukuk Now and Sustainable Islamic Finance.
With more than 15 years’ experience in the in the business intelligence and fintech industry, he has developed novel solutions that cater to the needs of Islamic finance investors and professionals as well as digital platforms for the wider Islamic economy. Before LSEG, he helped develop Zawya Islamic Finance, which was later integrated in the form of apps onto EIKON - the flagship product of Thomson Reuters / Refinitiv. Prior to that, he worked with the National Bank of Kuwait as assistant economist.
We sat down with Adnan Halawi to learn more on the latest developments and innovations in sustainable Islamic finance, and the newly launched Sustainable Islamic Finance app.
You have extensive experience in developing solutions that cater to the needs of Islamic finance investors and professionals, and in transforming data into useful insights. Based on your research and observations, what would you say the Islamic finance industry is missing today?
It’s my passion to play around with numbers and data, and to provide tools to analyse the market. I’ve done this at the beginning with sukuk and now with sustainability content sets. Islamic finance has grown tremendously over the past 15 years since I started working on this industry. In 2020 alone, there was a 14% growth in global Islamic finance assets, partly due to the elevated levels of sukuk issuance in traditional markets such as the GCC and Southeast Asia. This is according to the Islamic Finance Development Report 2020, produced by Refinitiv, which is now a London Stock Exchange Group (LSEG) business.
I wouldn’t say ‘what is missing today’ but would use the word ‘lagging’, or what we do need more of. Because there is a bit of everything in each market and the level of advancement varies from one country to another. We want more of the six following things:
First, we always ask for more government support. It could come in the form of regulations, or tax incentives. This varies from one market to another, because there is legislative complexity and a lengthy process for example associated with sukuk issuance; thus, the removal of barriers would be very helpful. Also, when we issue sukuk, there is identification of physical collateral and complex documentation required, so this needs to be removed. An example of a good initiative is Malaysia’s Sustainable and Responsible Investment Sukuk Framework, which they launched in 2014 to facilitate the financing of SRI initiatives. It was a pragmatic move by the regulator to facilitate innovation.
Another example in Malaysia is the incentives that they started offering for the green economy: tax incentives for green technology projects, services, and assets, all of which will spur more issuance of green sukuk. The second point is awareness. We still lack a lot of awareness among investors, startups, and the public. Third is continuous alignment with global and conventional trends. We are not a standalone industry. Sustainability and ESG investing are global trends, so we need to follow them more closely.
Fourth is unified standards or standardization. We know there is an issue with standards. There are Asian standards, GCC standards, and others, so unification is important. Fifth, is more innovation in products and structures to meet the ever-evolving needs of investors. Obviously, the more we innovate, the more products we will have and the more acceptance we will gain.
Last but not least, is moving more towards digitalisation, because this is another global trend.
You have headed the development of the Sustainable Islamic Finance App on Refinitiv Eikon and Workspace. Could you tell us more about this app? What is it designed to do and who is it for?
Eikon and Workspace are platforms by Refinitiv/LSEG that offer users access to data. For this app, my thinking was, we have a wealth of data on Refinitiv Eikon about asset classes – equities, indices, news, money markets, bonds, funds, and banks. Additionally, we have ESG data. Refinitiv does scoring for ESG equities and funds, and flags bonds as Green or ESG. So, in terms of ESG metrics, we have a wealth of data across asset classes. At the same time, we have a wealth of data on Islamic finance. Therefore, I thought why not put all this data in one place?
This app is a one-stop shop where users can analyse how sustainable Islamic finance is performing. You can see among the shariah-compliant equities, which ones have the highest ESG scores, and among the Islamic funds, which ones are scoring highest in ESG. Among sukuk, you can see which new issuances of sukuk are ESG or green. For banks, you can also see which banks are scoring better. And finally, you can read the news and look at indices. Now we have the FTSE Russell index and many others related to ESG in Islamic markets. When it comes to the shariah compliant flag, we are collaborating with IdealRatings to reflect the shariah compliance. But the ESG scoring is done by us.
In its current format, the app helps investors to identify ESG-linked investment opportunities. It’s for people who want to analyse the market can see where they stand, and for those who want to learn from others. This is just the first version of the app. In the future, we’ll be adding more content sets and features. If some of the banks that use our app see that they’re not visible, this itself is a call to action to start reporting on ESG. Everybody these days, including investors, regulators, governments, and people, wants to be more aligned with ESG elements and the SDGs. We hope that with this app, more people will be reporting. But again, this goes back to government support. Now in the UAE for example, Abu Dhabi Global Market is encouraging ESG reporting.
Clearly, interest in ESG funds has grown considerably as people begin to invest with a stronger moral compass. Has the impact of this growing desire to invest morally helped spark interest in shariah-compliant assets?
Definitely. The more interest in investing in ESG funds, the more interest in ESG-compliant asset classes or investments. Funds bring more sukuk, and more sukuk brings more funds. Islamic finance calls for justice, empowerment of all stakeholders, ethical practices, and social responsibility; notions that are at the heart of sustainability. In other words, sustainability and Islamic finance are not strangers to each other. The moment you start to think ethically or Islamic finance, you’re thinking sustainably. And this makes it a better ecosystem.
In 2020, ESG sukuk reached a record value of around $4.6 billion, and in 2021 we might exceed this number, so ESG sukuk is on the rise. The average size of ESG sukuk is also growing. Meanwhile, the shariah-compliant funds are moving more toward sustainable investment, and the value of sustainable Islamic funds is growing.
To give examples of newly launched funds, Malaysia has just launched the Kenanga Waqf Al-Ihsan Fund, based on waqf, an Islamic philanthropic tool that aims to enhance social and economic aspects. Another waqf-based Malaysian fund that launched is the Maybank Mixed Assets-I Waqf Fund [a retail Islamic mixed assets fund which aims to generate annual income with an allocation to Waqf. The increase in Islamic ESG funds in Malaysia is in line with the commitment of the country’s Securities Commission’s towards sustainable investment, according to our quarterly Sustainable Islamic Finance monitor report, a publication exclusively available to our Eikon users.
More waqf investment funds are also set to be launched in Saudi Arabia. There are currently eight of such funds, which demonstrate development initiatives between the Saudi Capital Markets Authority and the General Authority of Awqaf.
So, there is a lot of activity in Awqaf and Waqf funds. Just today, Saudi Arabia’s SEDCO said they will be launching an ESG-focused shariah-compliant fund which will employ a pragmatic, systematic and multi-factor approach, and which aligns shariah compliance with responsible investment and sustainability principles. With these examples, you can see that more innovative and more Islamic ESG funds are being launched.
What innovations do you see in the sukuk market lately? Are these innovations making it easier for issuers to adopt SRI principles?
Innovation could be a small change, or a twist here and there, to make a sukuk or fund more accessible and acceptable by the end user, and more customer centric. Every time a new fund or sukuk is launched using a new asset or structure, it helps. The fact that we’re seeing more funds and more sukuk from different countries, utilizing different asset classes and serving different purposes like the pandemic and the energy sector, all of this is innovation.
Looking at this week’s headlines, for example, SEDCO is launching an ESG-focused shariah-compliant fund; this is a private sector initiative. Also, Saudi Arabia plans to issue green bonds to advance its ESG plans; this is a government initiative. MARC, the ratings agency in Malaysia, has assigned a Gold Impact Assessment to Bank Pembangunan Malaysia (BPMB)'s Sustainable Development Sukuk Framework. Then, a US-headquartered law firm [Akin Gump] is advising Kuveyt Turk bank on the world’s first regulatory capital tier-2 ESG trust certificates. There has to be something innovative about this.
As far as you know, which countries or institutions are leading the way when it comes to the issuance of SRI/ESG sukuk?
According to the Quarterly Sustainable Islamic Finance monitor report, prepared by the Refinitiv and published on Eikon, the top ESG sukuk issuer between 2017 and 2021 is the Islamic Development Bank, with more than $5 billion of ESG sukuk issuance. The second is the Indonesian government, which has been very active in the ESG and SRI sukuk space, with issuance close to $4.7 billion. The third is the Malaysian government as an issuer with more than $1.6 billion. The fourth is Saudi Electricity Company, with $1.3 billion, followed by Majid Al Futtaim Group from the UAE, with $1.2 billion.
Everything indicates that governments are headed in that direction. So, the future is bright for Islamic sustainable finance, particularly funds and sukuk, and we will increasingly see banks and companies adopting ESG principles and reporting on them.
What are you busy with now and what’s next on your agenda?
The Sukuk Now app is now bigger and better than ever, because it has a screening capability and a Heatmap where users can analyse sukuk data in two or three clicks. This was launched in 2021 and was a big investment. We also have a database on Refinitiv Eikon of fatawa regulations and standards; documents related to Islamic finance. We are revamping this to give users better documentation workflow. On a personal level, I’ve just completed my master’s in digital marketing from IE University in Spain, which means I’m now closer to the client, more customer centric in my thinking, and inclined towards better SEO and analytics.