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Best Practices in Socially Responsible Finance:

Lessons for the Islamic Financial Industry from Leading Socially
Responsible Financial Institutions in the UK

Salma Sairally

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Published in Japan in December 2011

Joint Usage / Research Center for Islamic Area Studies

Center for Islamic Area Studies at Kyoto University (KIAS)

This Publication was funded by

the Ministry of Education, Culture, Sports, Science and Technology (Japan)

ISBN 978-4-904039-39-7

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Contents

Biography v
Abstract vi

Chapter One:
INTRODUCTION 1

Chapter Two:
CSR AND THE GROWING SOCIALLY RESPONSIBLE 4
FINANCE MOVEMENT

Chapter Three:
THEORETICAL FRAMEWORK FOR ASSESSING 8
CORPORATE SOCIAL PERFORMANCE

Chapter Four:
TRANSLATING THE THEORETICAL CSP CONCEPTS INTO 11
EMPIRICAL INVESTIGATIONS

Chapter Five:
RESEARCH METHODOLOGY 15
A. Selection of the SRFIs 16
B. Secondary Data Collection: Company Websites and Literature 17

Chapter Six:
EXAMINING THE SOCIAL RESPONSIBILITY OF SRFIs: 19
THE UK EXPERIENCE
A. Examining the CSR Principles Endorsed by the SRFIs in the UK 19
B. Assessing the Management of CSR Issues by the SRFIs 26
C. Evaluating the Corporate Social Responsiveness of the SRFIs 32
D. Measuring the Outcomes of CSR Actions for the SRFIs 35

Chapter Seven:
SUMMARISING THE FINDINGS ON THE SOCIAL 40
PERFORMANCE OF THE SRFIs

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Chapter Eight:
LESSONS FOR THE ISLAMIC FINANCIAL SERVICES 42
INDUSTRY FROM THE BEST PRACTICES OF THE SRFIs
i. Highlighting the Islamic Ethical Values 43
ii. Learning from the Screening Criteria of the SRFIs 44
iii. Learning from the Engagement Practices of the SRI Funds 44
iv. Establishment of Foundations for Carrying out Welfare Activities 46
v. Innovative Products and Ideas 46
vi. Establishing an Explicit System for Managing CSR 47
vii. Measurement of Performance 47
viii. Qualitative Screening Index to Rank IFIs according to their 49
Social Performance
ix. Transparency and Corporate Social Reporting 50
x. Customer Participation 51

Chapter Nine:
CONCLUSION: INSTILLING AN ISLAMIC BANKING 52
CULTURE

Bibliography 55

APPENDIX 63

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Biography

Salma Sairally, PhD is a researcher at the International Shari’ah Research

Academy for Islamic Finance (ISRA), Kuala Lumpur, Malaysia. She is
currently the Editor of the ISRA International Journal of Islamic Finance.
Dr Sairally holds a PhD (Economics) from Loughborough University, UK;
Masters (Distinction) in Islamic Studies (Islamic finance) from Portsmouth
University, UK; BSc in Economics and Finance, University of New South
Wales, Australia under Commonwealth Scholarship. She also holds a
Diploma in Islamic Finance from the Markfield Institute of Higher Education
(MIHE), UK.
Prior to joining ISRA, Dr. Sairally was Economic Analyst at the Ministry
of Finance and Economic Development, Government of Mauritius. She
has also been a part-time lecturer in banking and finance at the University
of Technology, Mauritius. Concurrently, she has been a trainer in Islamic
Banking and Finance at the Latiff Mohamudally Institute of Management, a
private training institution in Mauritius. Dr Sairally has also been a Visiting
Associate Professor at the Graduate School of Asian and African Area Studies
at Kyoto University, Japan.
Dr Sairally has provided consultancy services in Islamic finance to a
number of financial institutions, namely the Stock Exchange of Mauritius,
Investec Bank (Mauritius) and the Seychelles International Business
Authority (SIBA), Seychelles. She has also published and presented a
number of papers in Islamic banking and finance at international conferences,
including Mauritius, Indonesia, and Japan.
Her research interests are Islamic Banking and Finance, Socially
Responsible Investments, and Islamic capital market, among others.

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Abstract
Socially responsible finance (SRF), which endorses the principles of corporate
social responsibility (CSR), has been increasingly used since the 1990s.
Financial institutions like The Co-operative Bank and Friends Provident
Stewardship Funds have emerged in the UK to meet customers’ preferences
of including ethical and environmental, social and governance (ESG) values
in their investment and banking transactions. Similarly, a number of Islamic
financial institutions (IFIs) have been established worldwide to offer Islamic
financial products to Muslims who seek alternatives to the interest-based
conventional financial system. These IFIs also highlight the relevance of
the Islamic financial products to the larger society, especially the ethically-
concerned. The drive of both financial movements is to bring ethics and
social responsibility – whether rooted in secular humanism or in religious
teachings – within the domain of finance. This serves as the underlying basis
for building bridges between the two financial paradigms.
This study aims to examine the corporate social performance (CSP) of
fourteen (14) leading socially responsible financial institutions (SRFIs)
in the UK. The CSR practices of the SRFIs are evaluated through content
analysis of their electronic materials on basis of their performance in four
areas: (i) recognition and understanding of their CSR responsibilities; (ii)
integration of corporate responsibility issues; (iii) management of CSR; and
(iv) social performance in terms of commitment of resources towards CSR
and the programmes set in place for the measurement and disclosure of CSR.
The analysis revealed that a sophisticated understanding of CSR shaped the
culture of the SRFIs which have mostly embedded CSR within their business
transactions. CSR constituted an integral, explicit and strategic decision of
management, with an appropriate management system in place and, in some
cases, with indicators developed to assess CSR performance against planned
targets. The best practices drawn from this study are believed to provide
useful lessons to the Islamic financial services industry.

Keywords: Socially Responsible Finance; Socially Responsible Investment;

Corporate Social Responsibility; Islamic Finance; Islamic Financial Institutions;
Socially Responsible Financial Institutions; Ethics; Corporate Social Performance.

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