This Is Guernsey

By Tom Edwards

ISLAMIC philosophy may offer a beacon of light in the midst of the global credit slump, according to a leading authority on the subject.

Toby Birch, who predicted the world financial crisis in his book, The Final Crash, believes the West has a lot to learn from Middle Eastern business practices.

He said ethical investments guided by the principle of Islamic Sharia holy law led the way towards a sustainable economic future. As the dollar weakens, oil prices go up and the beauty of this is that all of a sudden opportunities such as alternative energy come to life. The credit crunch is actually a positive thing – a natural process that will benefit future generations by flowing capital into areas like the environment.’

According to Paul Matthews at Brewin Dolphin, ethical or socially responsible investments can satisfy an individual’s or group’s principles or moral values.

They can be in companies, products or practices that do not employ environmentally damaging methods, trade with oppressive regimes or countries with poor human rights records or have anything to do with pornography or offensive advertising, gambling or tobacco and alcohol production.

Funds which might include ethical policies or brand themselves as an ethical investment include child trust funds and even mortgages.

According to Richard Eagling of Moneyfacts, the growth return on ethical funds over a three-year span was 57.2%, compared with ‘non-ethical’ ones at 52.3%.

‘The strong returns enjoyed by ethical funds in recent years have helped to shatter the misguided belief that ethical investments will always underperform traditional investment funds and that sustainable business practices restrict company growth,’ he said.

‘Instead, ethical funds have outperformed both their non-ethical rivals and the FTSE 100 over the last three years.

‘These results provide compelling evidence that companies which adopt sustainable practices should be tomorrow’s winners.’

However, despite the above evidence, research has indicated that growth in  ethical investments can decrease over longer periods of time. Also, a study has revealed that many self-professed ethical companies are not sticking by their commitments to conduct business which benefits the environment or promotes honourable practices.

Mr Matthews said the European Ethical Index had underperformed the broader European indices significantly over the last one, three and five years.

Mr Birch is the executive director of Blackfish Capital Holdings, a fellow of the Securities and Investment Institute and a holder of the Islamic finance qualification.

Last year his book, which explores the Western preoccupation with debt, was published to widespread critical acclaim under the pseudonym, Hugo Boulea.

‘The baby boom generation had it all and expected the rest of us to pay,’ he said.

‘The global economy has been on steroids for years and therefore it has suffered internal damage as a result.

‘What we must get used to is a more symmetrical and harmonious system, based on the idea of transparency.

‘The problem we have in the West is that banks are very dominant and control people through lending. If something goes wrong, such as a mortgage, the homeowner loses their house.

‘But in Islamic Sharia law, charging interest is forbidden. The bank would lose money and would also help out the homeowner.

‘It’s a slow way of growing business, but ultimately a more sustainable one.’