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.
Internationally, many companies are recognizing the importance of corporate social responsibility. Moreover, an increasing number of forward-thinking organizations are demonstrating that incorporating sustainability measures does not limit business growth, but instead presents a strong business opportunity for innovation and value creation.
CSR reporting, increasingly enforced by regulation, enables a business to gain valuable insight into its overall performance, empowering management to further optimize the business strategy for sustainable growth.
CSR reporting can be instrumental in leveraging the following business advantages:
- ‘first mover’ advantages in certain markets
- encourage the business to think strategically and to develop a long-term and holistic vision
- lead to operational efficiency gain through system and process optimization
- improve employee loyalty and productivity
- improve access to financial capital
- build and strengthen a favorable reputation
- improve risk management
- encourage portfolio diversification
Existing reporting standards are typically broad in application. While this offers flexibility, it does not leverage the potential available from integrating local business practices.
The Islamic Reporting Initiative (IRI) provides an internationally recognized standard that is specifically designed to incorporate the practices inherent to Islamic business practice. Businesses that follow the principles of Islam can therefore benefit from a more compatible method of reporting, accelerating progress towards sustainable innovation and growth.