CSR reporting format IRI featured in Business Islamica July / August 2015 edition
Introducing the IRI
Launched earlier this year, the Islamic Reporting Initiative (IRI) has rapidly gained momentum and support from businesses, governmental organizations, non-profit organizations, and educational institutions from all over the world. The IRI is aiming to create the first mainstream reporting standard for Corporate Sustainability and Social Responsibility (CSR) based on Islamic principles, and will enable organizations to inclusively assess, report, verify, and certify their CSR programs.
The IRI, a not-for-profit organization, has the potential to be of immediate benefit to organizations in over 50 countries, being of particular relevance to members of the Organization of Islamic Cooperation (OIC). The IRI is currently in the first of three development phases, which sees the IRI gathering signatory members and partners to represent all sectors. Already the IRI has members from across the Middle East, central and south-east Asia, and Europe, so far representing business sectors from healthcare, finance, education and the environment. Such international and multi-sector collaboration will bring to the IRI extensive industry-specific expertise, and ensure thorough and appropriate inclusion of culturally-specific elements, such as Sharia, Zakat, and other organizational codes of conduct. With the majority of sectors and industries represented, a process of expertise-mapping will be conducted to identify the scope of resources before round table discussions commence. This phase represents the start of a new generation of CSR reporting – one that is culturally-relevant and impact-oriented.
Why the IRI has been created
While the IRI seeks to make CSR reporting standard practice for organizations across all sectors, to advance economic opportunity responsibly in the Islamic world, the underlying vision is quite unique. The IRI seeks to achieve the above with a methodology that is culturally relevant and impact-oriented. This approach is in response to research confirming that companies worldwide are not always finding the current broad tools for CSR reporting to be as practical or relevant in a local context. The IRI is a culturally-specific alternative and effective solution to this challenge, able to recognize and engage with the nuances of the organizational culture while still working towards international standards of best practice.
Islamic principles serve to imbue individuals and organizations with a responsibility to care for society, and such principles infiltrate society through various practices and perspectives. As such, it is widely recognized that companies operating according to Islamic principles tend to embrace an organizational culture that is premised on notions of trust, morality and accountability. It is these cultural nuances that influence and shape an organization’s conduct, and subsequently sculpt a CSR strategy. This grounds CSR as more than an economic initiative – rather, a moral initiative – since it is founded on the understanding that an organization aspires to be a ‘good corporate citizen’.
Subsequently, CSR in Islamic countries and companies is naturally influenced by the prevailing and deeply embedded philanthropic culture, which serves to address a wide spectrum of needs on an international scale. At the organizational level, philanthropy represents an effort to balance their rights with society’s rights, in contrast to a more typical understanding of an organization which seeks to conduct economic and social activities to maximise profits. Subsequently, there is a tendency to blur philanthropy and CSR, or, at the other end of the spectrum, understand them as incompatible. The IRI, however, seeks to identify them as distinct and complementary concepts, recognizing and utilizing the individual strengths of each means for achieving ‘good’.
By aligning philanthropy with an integrated and holistic CSR strategy, the IRI sees philanthropy becoming empowered to self-generate ongoing development. Understood in this context, CSR and philanthropy have the capacity to provide the community not only with immediate support but also with long-term security. The IRI aspires that organizations not only spend profits responsibly, but also create profits responsibly. As such, the IRI recognizes the potential intrinsic relationship between CSR and philanthropy, and therefore positions philanthropy to be a key partner of CSR. Such an interpretation fosters a CSR approach which is unique to, and embraces, Islamic culture.
With the IRI aspiring to create a tool for integrated reporting – that is, a form of reporting that gives equal weighting to finance and non-finance related indicators, otherwise known as triple bottom line reporting – it is crucial that the tool is compatible with the method of banking and finance that underpins the organization. At present, Sharia-compliant finance remains small in terms of assets under management, but it is growing fast. A recent study estimated that as of 2014, total assets of around $2 trillion were Sharia-compliant, indicating that Islamic banking grew at an annual rate of over 17% between 2009 and 2013. It is estimated to grow by an average of almost 20% per year to 2018, which demonstrates that Sharia-compliant finance is increasing at a rate faster than other finance types. In response to the growth of Islamic finance, and the need for integrated reporting, the IRI will be compatible with Islamic finance principles, facilitating better and more relevant CSR reporting.
With legislation a leading force in the uptake of CSR, particularly for large and publicly-listed companies, and the consequence of receiving penalties for not implementing CSR, there is a tendency to view CSR as having a ‘check list’ quality. Such an approach may generate only incremental changes and benefits since it does not encourage businesses to implement change above and beyond legislative requirements. This is despite research confirming that organizations which implement integrated CSR are financially more stable than their peers who do not. This business advantage is especially true when the CSR strategy produced is an outcome of stakeholder engagement whereby the strategy is reflective of their interests. What this demonstrates, is the capacity for alternative business models not only to exist, but to thrive in an economy that is still, by and large, quite conventional. This should offer confidence to organizations in moving away from the traditional business model, which is typically profit-driven, to one that embraces CSR holistically and delivers value systemically, across the triple bottom line; people, planet and profit.
CSR as an economic imperative is in part evidenced by the shifts that are currently taking place in finance and investment markets, whereby the adoption of CSR policies, and perhaps most importantly the availability of published CSR reports, is of growing interest to investors. The establishment of the Social Stock Exchange (SSX) in London is evidence of this shift; it is the first platform of its kind in the world to serve as a marketplace for publicly listed social impact businesses (see inset).
Realizing the economic potential
Despite this evidence, there is still hesitation from many companies, across sectors, to implement CSR, and even more so for a fully integrated strategy. This is in part due to the risks associated with adjusting an already functioning business model. However, most risks can be attributed to poor strategic integration, which can be minimised or overcome by ensuring a thorough assessment is conducted prior to, and during, the development of the strategy, to ensure it meets the needs of the stakeholders, and of course, that an appropriate CSR reporting tool is selected. The process of reporting may yield multiple benefits, since it provides a window of opportunity to analyse and evaluate an organisation’s internal systems and processes, and enables risk to be fairly assigned across all departments, stakeholders and partners by integrating them into an organization-wide process.
Having successfully integrated a CSR strategy and aligned it with issues integral to the organization, it is crucial to communicate this narrative to stakeholders to ensure long-term engagement. This call to communicate is in part driven by an emerging culture of transparency. It is estimated that 90% of consumers would actively recommend an organization that had excellent CSR credentials, and a report is the source of such information. Transparency,therefore, is a pathway to increased trust in the organization, fostering interest from consumers and investors and sustaining the business. The IRI, while promoting the use of reporting for reasons of transparency, among others, does not make mandatory the comparison to peer organizations. This is because the IRI is first and foremost a business tool for the practical benefit of the company and its stakeholders.
Organizations with an integrated CSR program are engaged in a circular sustainability process, whereby an organization’s CSR initiatives may serve to strengthen a community and environment, which in turn safeguards business opportunities in the middle to long-term future. For example, initiatives which encourage investment in society, whether that be in healthcare, youth engagement or education, will in time generate a community that is healthier, better educated, and actively contributing to and benefiting from the local economy. With this increased affluence and capacity comes demand, which sustains the need for the business to continue operating, providing it is offering relevant products and services. Similarly, in an environmental context, CSR initiatives can look toward minimising resource use, or encourage responsible resource management such as recycling or up-cycling. Companies that have applied this behaviour to the core of their strategy have demonstrated an exciting capacity to excel among their peers, and achieve sustainable value creation.
With this in mind, the IRI supports organizations in working towards resolving challenges at an international level, such as community development and responsible resource use, but localizes the means through which organizations achieve this, by allowing them space to identify the issues most relevant to them and their stakeholders.
The latest organizations in the MENA region to partner with the IRI include the International Medical Centre (IMC), in Saudi Arabia, and Jerusalem Pharmaceuticals, a leading publicly listed company in Palestine. With both companies broadly operating in the healthcare sector, the IRI is anticipated to benefit from a diverse and extensive range of expertise from across this industry. Dr Iyad Masrouji, CEO of Jerusalem Pharmaceuticals: “As a partner, we intend to contribute insight to form a tool that facilitates prosperous conditions for all, and we hope to make a lasting impression on the way CSR reporting will be conducted in the future”.
The Middle East University in Jordan was one of the first Signatory Members of the IRI. Dr Abdel-Aziz Sharabati, Head of the Management, Marketing and E-Business Department, said: “As a national education institution, what we perceive to be a long-standing challenge is a mismatch between the skills developed through education and those needed for employment. Other challenges include youth engagement, unemployment, and those in the workplace themselves, such as gender and labour issues”.Speaking of the potential of the IRI, Sharabati said: “The expertise we can bring as a University is the energy of a generation that seeks positive change. We are well placed to recognise the challenges of the younger generation and able to contribute to the solutions”.
Most recently, the IRI announced its partnership with the Social Stock Exchange (SSX) to work towards compatibility with their standards. Tomás Carruthers, CEO of the Social Stock Exchange: “Our strategic partnership with the Islamic Reporting Initiative presents an alliance between two organizations that through distinctive and complementary methods work towards mainstreaming responsible business. We look forward to collaborating with the Islamic Reporting Initiative in our joint aspirations”. With the SSX already having a market capitalization of US$ 1.91bn, the global market for social impact investment has been estimated to be worth US$ 9bn and is expected to grow to between US$ 200bn and US$ 650bn in the next decade. Not only does this indicate the potential for investment in organizations which behave responsibly and sustainably, but it demonstrates the necessity of conducting a thorough reporting process for visibility, transparency, and trust. Furthermore, with London already a leading centre for Islamic finance, the strategic partnership between the London-based SSX and the IRI is a valuable prospect for responsible business on an international scale.
Message from the Chairman of IRI
Elffers, who was Chairman of recent year’s CSR Summits in Saudi Arabia and Qatar, and a judge at the 2015 CSR Excellence Awards in Dubai, said: “Responsibility reporting is moving into a new phase; no longer a top-line or reputational activity, reporting is becoming a critical factor for sustainable business. It is therefore imperative that companies worldwide are implementing, and accurately reporting on, comprehensive social and environmental activity. On a global scale, the IRI aims to accelerate the progression towards societies that are more stable, more sustainable, and more prosperous”.
Call for pioneers, leaders and sponsors
The IRI is inviting organizations to collaborate in the further development and wide-spread implementation of the IRI. The IRI seeks contributions of expertise and donations from organizations representing all sectors, including public and private bodies. In return, partners will participate and receive recognition for being a founding partner in what the IRI believes will be a legacy of organizational sustainability.
For more information on partnership opportunities and other ways in which your organization can support the IRI, please contact email@example.com or visit www.islamicreporting.org.
Article: CSR reporting format IRI featured in Business Islamica