Sukuk as a tool to achieve the Sustainable Development Goals (SDGs)

By: Iliyas Ismail

The Sustainable Development Goals

The United Nations Sustainable Developmental Goals (SDG) are a set of recommendations for all countries around the world to adhere to, in creating a more sustainable world environment by the year 2030, with the policy being adopted by all member states in the year 2015. The SDG was formulated as a continuation to the foundations laid by the Millennium Development Goals (MDG) which ran from 2000 and ending in 2015, which focused on developmental goals, such as poverty eradication and education for all. The SDGs are an improvement in that, apart from being more inclusive in its developmental goal targets, the SDG is more widespread as it applies to all countries instead of just the developing countries as was the case with the MDG.

It is this inclusiveness that makes it unique and more relevant, as it is formulated to have this inclusiveness at its core (Capriani, 2016), to include as much of the world’s population as possible. Apart from governments who are the major players in the instruments of raising awareness and promoting change in thinking and act among their populations, many individuals and corporations and various sectors have also discussed on the best ways to contribute to the cause. Even from the accounting profession, individuals from the field published a policy document outlining on how the profession can contribute to the SDGs (International Federation of Accounting, 2016), and Bebbinton and Unerman (2018) states that the SDGs would reinvigorate discussions among professionals in the field on how accountants can contribute to this noble cause.

Main challenges to SDG achievement have been said to be education, climate change and peace. Female education especially is cited as a major factor to achieve many SDGs (Murkhi & Quenthal, 2019, Haysom, 2018). The female population is roughly half of the world’s population, and it is still an unfortunate scenario that this major segment of the world’s populace is still, in many countries neglected, and this simple fact reduced the effectiveness to achieve goals such as reduced inequalities, zero hunger and no poverty. Freistein and Mahrlert (2019) states that although SDGs’ goals remain abstract and formulations are vague, it serves as a good potential for tackling inequality as it puts it as a central issue among its targets.

Pradeep (2019) concurs with this by stating that most of the SDGs concern women’s wellbeing, and gender equality (Goal 5) is a major SDG to tackle. SDG 4 (clean water and sanitation) reflects the importance of SDG 5, as currently many women in many countries especially developing ones, shoulders the responsibility of obtaining clean water for the household, at the expense of getting an education or other paid jobs. With gender equality, this could assist them to be able to improve their livelihood, as well as contributing to the society and assisting to provide better sanitation at a national level. In this case, the author agrees with this concern.

Gender equality must come with the imposition by government through policies and recommendations, as providing fair education and training for its citizens might not be enough, as in the case with Moldova, where women are excluded from many jobs, thus seek to migrate to find jobs in other countries (Cherkeh et al, 2004). It is also the case with Filipono women, who find that shortages of job and low wages encourage them to seek job elsewhere overseas (Lorenzo et al, 2007). The need to analyse patterns of migration to assist in implementation of the SDGs is highlighted by Holliday et. al. (2016) as well as Gammage and Stevanoic (2018) who state the pressing need to address structural imbalances and curb the exploitative labour and migration policies. Razavi (2016) also concurs by stating that economic model that forms the structural backdrop of many countries must be changed to put stronger accountability mechanisms.

Zamora et al (2017) puts things into perspective for participants to involve all parties concerned, through a “no one left behind” framework developed by WHO to involve all parties concerned for subnational health planning, including a piloted approach involving 100 health managers from all of Ulaanbaatar in Mongolia to attempt to how to build focus into its situation analysis and needs assessment.

Papers such as Bexell and Jonsson (2016) emphasised that the SDG goals should discuss more on root causes of the problems, to emphasis the responsibility of primary actors, such as historical causes of structural problems, like trade, debt, environmental pollution and climate change, instead of stressing too heavily on reactive measures. This is true, since if primary actors do not take the major blame and recognize their culpability, they would be less likely feel more responsible for the current state.

Tiwari (2017) gave examples of studies in several countries that shows an increase in road traffic accidents, especially in Asia, Africa and Latin America with greater need by all levels to help increase public awareness on the simple need to wear helmets and seatbelts by stricter regulations and avoidance of use of phones while driving. The author also poses the question if motorcycle-only lanes can be considered in the long run, due to studies are still at an early stage and calls for more research in this and also the causes of railway accidents.

Raising awareness to the public should be an ongoing effort by interested parties. Even some developed countries such as Germany could make improvements, since the paper by Meschede (2019) found that not even half of the local government websites of the country advertise about SDGs, and advertisements by local government websites could assist in awareness. Lau et al (2017) concurs with the importance of internet promotion, as well as social media utilizations. 

In terms of local governance, Valencia et al (2019) calls for focusing on local level translation from the macro level design of the SDGs, in order that governments could clearly identify which city has which relevant SDG to implement. Kawakubo (2017) provides a new version of the Comprehensive Assessment System for Built Environment Efficiency (CASBEE), a rating and evaluating system of environmental performance, and puts it to good use on a local level for Greenhouse gas emissions assessment.

There have been some critiques on whether SDGs can be obtained in the long run. Fletcher and Rammelt (2016) question the notion of decoupling, the idea as stated by former UNEP Executive Director Achim Steiner to be, ‘Decoupling at its simplest is reducing the amount of resources such as water or fossil fuels used to produce economic growth and delinking economic development from environmental deterioration’ (Steiner A. (2011), with the authors calling it a “fantasy”. Spaiser et. al. (2016) agrees by stating that economic growth will inevitably result in environmental deterioration, however found that certain economic development, namely health programmes and government investment and ecological sustainability (renewable energy) that would not trigger an environmental crisis.

Gabay and Ilcan (2017) argues against the heavy neoliberal agenda of the current state of affairs permeating in many countries, and stated that it could be a hindrance towards achievement of affordable and sufficient housing for all, although the paper does not actually explain in depth the reason behind such a hostile view of neoliberalism, although neoliberalism has been commonly used accusatorily. The UN SDGs itself as mentioned, as a no one left behind framework by trying to involve as much parties as possible and Weber (2017) stated that this view of no one being left behind is compulsive in nature and finds resistance and re-articulation inevitable, while also stating that the current liberalised and deregulated economy makes unsustainable developments impossible in the first place.

Certain papers compare SDGs with the previous MDGs, papers such as that by Westgrate et. al. (2018) and state that improvements of have definitely been made to many aspects, such as the lack of indicators in the MDGs for water sanitation, however though the SDGs has fulfilled this gap, it lacks transparency, because it fails to report whether progress has been made through centralised piping infrastructure, and the paper goes on to provide these indicators, which is commendable.

Langan and Price (2017) stated that the SDGs is welcomed by many private sectors especially that Goal 9 focuses on job creation, which could lead to private sector development, however the authors questions if this would further solidify the free market policy which in turn could be detrimental to the poor as well as the needs of workers and producers. Hurt (2016) have stated that liberalised agendas have resulted in many African states resisting it including providing a front against the Economic Partnership Agreements (EPA), and he explores the idea of transnational labour solidarity as a counter-balancing force.

Lynch (2016) provided insights into the importance of physical education collaboration, between universities and students as well as various other stakeholders to help achieve SDGs concerning with health and well-being, although they acknowledged funding can be an issue.

SDGs in the Malaysian context

According to the 2018 latest report of the countries in the progress to achieving the SDGs and their current status, the country of Malaysia ranks at number 70 (SDG index report, 2018). The SDG that is of interest for this paper is Goal number 11, namely the sustainable cities and communities. This goal seems very relevant in the context of Malaysia as a developing nation to resemble the developed country status of having very convenient city as well as catering to people of all backgrounds, regardless of status and income as well as personal abilities/disabilities.

The first target of this goal is the ability to provide affordable, safe and adequate housing for everyone, and this is one of the challenges that many today are facing especially the younger generations. The period between 2017 and 2018 didn’t see any improvements in SDG 11 for Malaysia based on the SDG index report, with satisfaction for public transport actually decreasing in one of the indicators presented. Housing also falls under the spectrum of needed improving, and thus should be continuously given attention to. At the moment, there are already various steps taken by the government, and these are all commendable and should be remained in public policy (UN sustainable development report, 2018). The initiatives taken are under the 11^th Malaysia Plan, and includes National Physical Plan, National Urbanisation Policy as well as the Rumah Pertamaku scheme. There are many others with regards to city planning and development but with regards to affordable housing, certain steps could be taken to assist in this regard.

Sukuk as an initiative is a tool that must be commended and utilized, especially as a proud instrument of the Islamic community. Nowadays, talks are rife about the potentials of sukuk with regards to sustainability especially with the introduction of the first green sukuk in Malaysia for the funding of environmental-friendly infrastructure projects, such as renewable energy power plants. Sukuk thus finds excellent ground in these fields to be harnessed upon.

The green sukuk potentials should be harnessed to be applied to SDG 11 as well, and these could assist in the government’s initiatives. Sukuk could be used for the funding of affordable housing especially for the younger generation and proceeds from the rental and purchase could be used to pay back the investors. Green sukuk also should not be limited to affordable housing but also to other investments to raise profits as well, to fund this initiative if proceeds are not sufficient.

It is also of vital importance as a country leading towards developed status to have modern cities including reliable and excellent public transport that caters to all people. The funding necessary for the maintenance as well as providing excellent service to commuters can be used by the proceeds of sukuk, though the involvement of multi-stakeholders.

The Sukuk could be used to finance roads and lanes for cyclists, as well as for the widening of roads for existing vehicles to reduce congestion and improve movements and productivity of the citizens. The first aspect should be highly encouraged to create a safe and attractive city for all as well as it could be advertised to increase the number of people in a particular city as well as help improve the economy.

Waste management which is indicator 11.6 could also be utilized with the introduction of sukuk. The proceeds from sukuk can be used to fund projects such as green waste disposal technology. The star (2018) reported that several Government linked bodies have collaborated to create technologies of anaerobic digestor, where microorganisms are used to decompose and break down bio-degradable objects to produce items such as fertiliser and renewable energy. This could reduce waste in landfills by 20%. Sukuk can also be used to finance the current effort to reduce plastic wastes in the country that has become an endemic, including the 50% of US plastic that ended up in Malaysia due to Malaysia importing wastes for revenue (The Edge, 2019). Recycling plant should be sufficiently financed as well as opening of new ones greatly encouraged to boost the number of recycled plastic bags.

Due to the still early stages of sukuk development as compared to bonds, it will be met with several challenges, which would include legal risks due to complexity in the sharia-compliant regulations, thus could provide hindrance towards global growth (Deloitte Sukuk Report, 2018). Sukuk also do not have the same underlying risk and profit as bonds, due to still developing stage of the tool as well as market. All this could provide risks in terms of gaining sufficient and long-term investors in the sukuk project. However, Malaysia as a Muslim majority nation at the forefront of many aspects of Islamic finance, could attempt to utilize the existing Islamic finance status of the country as well as the growing demand in this sector to provide the sukuk, with the cooperation and involvement of many Islamic banks as well, as is the case with HSBC Amanah who also introduced an early tool of sukuk product in Malaysia.