Integrated Islamic Social Finance Approach: The Case for Environment, Social Responsibility, and Governance

Integrated Islamic Social Finance Approach: The Case for Environment, Social Responsibility, and Governance

Syed Musa bin Syed Jaafar Alhabshi (Institute of Islamic Banking and Finance, International Islamic University Malaysia, Malaysia)
DOI: 10.4018/978-1-7998-6811-8.ch001
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Abstract

This chapter assesses the Islamic social financial approach by reviewing the concepts of nature, society, and environment of the current social reporting models such as triple bottom line and environmental, social, and governance (ESG) and integrated (corporate) value reporting. These are examined to analyse the limitations of the capital centric and profit motive focus of shareholder wealth approach. Based on the current ‘responsible investor' and ‘social responsibility investment' principles, the view of environment as ‘externality' has impeded the potential realization of social good from an ‘eclectic paradigm' of integrated reporting. An eclectic paradigm is adopted for the integrated Islamic social financial reporting approach by the internalization of environment as part of socio-economic goals to attain social harmony. It offers an opportunity for higher commitment to a more sustainable Islamic social finance development using the principles derived from Infaq, Sadaqah, Hiba, and Waqf. COVID-19 pandemic is particularly unique and to a certain extent has stalled profit motive commercial efforts to activate social funding responses. A more sustainable response is attainable from social market community-based system rather than market-based system. With Islamic social finance approach to COVID-19 pandemic, a more integrated, inclusive, and sustainable reporting is proposed.
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Integrated Reporting Of Corporate Value

Figure 1.

Economic Profit

978-1-7998-6811-8.ch001.f01
Source: Author

The above figure 1 presents the three reporting models that focus on environment, social responsibility and good governance as pertinent considerations in the pursuit of the economic profit. ‘An integrated report is a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long term (IIRC, 2013) (www.theiirc.org)’

An integrated report aims to provide insight about the resources used, interacting factor relationships which affect the organization – these are collectively referred to as “the capitals” in this Framework. They are categorized in this Framework as financial, manufactured, intellectual, human, social and relationship, and natural capital. The ability of an organization to create value for itself enables financial returns to the providers of financial capital. Hence, the focus of an integrated approach is to adopt the ‘shareholder lens’, that is, to harness the value from different types of capital including social capital. Technically, Integrated Reporting (IR) is capital centric with a primary economic profit motive. In cases where such profit is not viable the social initiative could not be implemented.

IIRC Integrated reporting (IR) report corporate value of capitals from investor perspective. Conventionally, the perceived economic value from economic profit with opportunity costs as the criterion will discriminate productive and non-productive capital based on its opportunity cost ‘discount factor’. Hence the social acceptability of the model will significantly rely on financial viability corporate strategy and investor risk appetite.

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