Governance and Sustainability

Governance and Sustainability

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You are now reading the eighth post in our blog. We are very grateful for the positive feedback on the prior posts.

We have addressed a wide range of issues related to sustainability, yet the actual word has hardly been used. We take this commonly-used word for granted, so it generally goes undefined. A good definition is in Merriam Webster’s Collegiate Dictionary (both of us are old enough to have printed dictionaries). Sustainability is derived from the word “sustain”. Sustain has many definitions, with healthy and enduring over time being common themes across the definitions.

The most prevalent use of the word is in the context of environmental issues, but it is also used frequently in relation to social issues. Within the context of performance, sustainability can refer to investments, social consciousness, environmental responsibility and good corporate citizenship.

Truly sustainable performance requires a healthy situation today AND good prospects for endurance over time. Even looking at statistics on historical improvements in environmental and social performance still provide one with limited ability to forecast the future.

In financial services there is a common caveat emptor that “past performance is no guarantee of future results”. Financial institutions in the United States are required by regulators to include this disclaimer with any investment performance data, but it can apply to environmental and social performance as well. The way we study and research sustainability gives us only limited ability to forecast the actual sustainability of current environmental and social performance. Hence, current good environmental performance is no guarantee of future good environmental performance.

Fortunately, the quality of governance can provide insight into sustainability. If current environmental performance is good, while at the same time governance is also good, then the prospects for future environmental performance are also good. The same is true for current social performance. Conversely, if governance is weak, then there should be less confidence that good performance can be sustained.

At the country level, there is a strong correlation between governance and environmental and social performance. Various rankings have been compared to show the relationship. For example, country-level environmental and social performance is ranked by the Social Progress Imperative measure. These rankings have been correlated with the Magni Country Scores for country-level governance. Most countries have similar relative positions among the two rankings.

Data is just beginning to emerge at the company level. We expect to soon see articles showing the positive role of corporate governance on environmental and social performance.

Good governance enables investors to have more confidence in the future environmental and social performance of a company. If a well-governed company already has good environmental and social performance, it is likely to maintain that performance. Additionally, if a well-governed company does not currently have good environmental or social performance, it is more likely to improve versus a poorly governed company.

Once again, it is important to encourage good governance at all levels. When assessing organizations, we should supplement assessments of environmental and social performance with assessments of governance. Better governance should be encouraged everywhere. Relevance, trust and impact (#RTI) is implicitly about enduring impact. We need to take steps to make #RTI sustainable.

Wassalam,

Kurt and Daud


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Comments (7)
2 years ago
DMZFamily

Firstly, thank you so much for sharing your great thought with all of us. In my opinion though, sadly, sometimes it is difficult to gain trust to enhance and give an impact that will ensure all of us to have good sustainability for the environment, social and governance. The true responsibilities actually lies in each and every one of us. (edited)

2 years ago
DVA Consulting Sdn Bhd

Agree it is each of our responsibilities and our Duty of Care

2 years ago
Magni Global

Agree. Part of Daud's and my Duty of Care is to spread these words. We do by that co-writing the blog. We also try to do that through our actions. We believe that many others feel the same way, and we hope that the blog enables people to realize how many share the same sense of Duty of Care.

2 years ago
IQRA University, Main Campus, Karachi Pakistan

There is not reason to admit the concept of governance and sustainability when good governance is the only solution to keep balance between need and resources, no matter consumable, usable or exchangeable. To have the governance the Islamic economic have clearly define in its definition which I research in almost twenty seven years and mention in my book Islam in Economics, Finance and Banking. This definition I am sure will serve to understand the purpose of the title given to this as Governance and Sustainability and the definition is:-
Islamic Economics is a system that identifies the available resources blessed by Almighty Allah to the mankind. How these resources are Sought, Utilized and Distributed by a man keeping in it, the social justice in participation and cooperation by applying, knowledge, experience, ability and efforts using the power of the pen and book, which is granted by Almighty Allah in confirming the man as “Unique among all creations” and appointing as “Custodian” to all the resources, that Almighty Allah owns it alone and absolute. Islamic Economic is a system that leads to socioeconomic development rather to be only economic development.

The Islamic economics is in fact socioeconomic system that demand careful use of human ability, capability, efforts, dignity, soberness, punctuality, ethics, cooperation, participation and on as top priority the reputation. This system insist that resources are unlimited created by Almighty Allah, whereas human efforts are limited that create scarcity which imbalance gap between production, supply and consumption. This increasing gap, increases the price and decrease the affordability as a result the man is deprive from the basic need and result in increase of crime.

Islamic economic clearly specify that needs and wants does not effect on the supply or resources. Availability of resources depends on efforts that increase affordability which is the force for satisfying needs.
Nations applying their efforts in achieving knowledge in the application of seeking rights of basic needs of life, keeping the social priorities, duties and responsibilities are the leaders of economic growth. Nation merges economic growth with social development are the genuine communities. Socioeconomic Development converts peoples into nations and good governance in the national affairs bring the sustainability. Islamic Economics with social priorities convert nations into leaders of welfare communities. (edited)

2 years ago
DVA Consulting Sdn Bhd

Thank you for your valuable insights. As I learned from the teachings of Prof Abbas Mirakhor many years ago. The ISLAMIC economy is not about a supply side issue as there is enough for all reasonable needs. The issue is one of distribution. Sadly most Muslim nations fair badly in following the objectives of the Maqasid. The Islamicity index developed by Prof Hossein Askari clearly demonstrates the importance of good governance amongst other key criteria. The highest ranked Muslim country isMalaysia at #43 whereas NZ is ranked number 1 (edited)

2 years ago
Magni Global

Well said by both of you. Good governance helps create conditions where scarcity is managed in a just and efficient manner. A capitalist system of the west that is run within a country with good governance tends to get a high Islamicity score from Prof Askari.

To me as a non-Muslim, I see the primary difference with a true Islamic financial system being the focus on shared risk, real assets, and an absence of synthetic financial structures. Daud and others have taught me the many benefits from an Islamic financial system, and I am thankful for that.

2 years ago
DVA Consulting Sdn Bhd

The learning will continue for us all