Institutional leadership and information sharing

Explanation

As part of the Strategic Realignment 2023-2025, the IsDB reiterates its role as a global MDB, with the unique characteristic of having a membership drawn entirely from the Global South (across several continents). The Bank suggests this underlies a strong orientation and support for South-South cooperation, with a particular focus on supporting the development needs and priorities of the Ummah.[1]

In this vein, the IsDB has shown strong institutional leadership in the field of Islamic finance, spearheading innovation and design of initiatives and instruments to unlock further sources of finance for development (and climate) outcomes.[2] Leading initiatives in this regard include:

• Becoming the largest global issuer of sukuk, deepening and broadening the Bank’s investor base, and unlocking funds that (besides project spending) are reinvested into supporting wider development of Islamic finance approaches.
• Leading the way on sukuk issuance to raise green finance, through both its own issuances and contributing to landmark Guidance on Green, Social, and Sustainability Sukuk (issued in collaboration with the International Capital Market Association (ICMA) and London Stock Exchange Group (LSEG)).
• The IsDB Institute’s (the Bank’s knowledge arm) dedicated “Knowledge Solutions Team”, geared towards developing and implementing innovative solutions to development challenges in member countries in line with the principles of Islamic economics and finance.

The Bank has also proactively sought to share its learnings and generate wider uptake of Islamic finance approaches, evidenced through information sharing efforts such as:

• Thought leadership efforts through the IsDB Institute, including regular short-form pieces, and a selection of extended publications such as the 2023 “Insuring a Sustainable Future: Building Climate Resilience Through Takaful” and “Mobilising Islamic Banking for Climate Action”, and 2021 “Reference Guide: Islamic Finance for Infrastructure PPP Projects”.
• Organising training programmes and knowledge seminars, for example the Massive Open Online Course on Islamic Finance for the SDGs.[3]
• Co-hosting the 19^th Annual Islamic Banking and Finance Conference (alongside the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), and represented by the IsDB Institute).

The IsDB has also sought to actively leverage its comparative advantage in broader South–South cooperation efforts. The Bank has primarily pursued this through two complementary strategic approaches:

• Reverse linkage: The IsDB’s “reverse linkage” approach seeks to facilitate connections between member countries (and other countries in the Global South) to realise synergies and complementarities in tackling common development challenges. Examples include cooperation between Morocco and Mali on solar energy for rural development, leveraging the former country’s extensive experience in rural electrification through solar power generation to support the latter in overcoming low rural electrification (through untapped renewable energy generation potential).
• Regional integration: The IsDB actively promotes regional integration for enhancing connectivity, trade, and investments, and ultimately improving livelihoods through mutual benefits. As evidence of this, during 2023 the Bank organised ten capacity development events specifically focused on various aspects of regional integration. Notably, the Bank has developed a dedicated regional cooperation and integration operational strategy, as well as published the IsDB Group Integration Report for Arab Countries, to guide its approach in this regard. In terms of dedicated initiatives, the IsDB has also collaborated with development partners to launch the Central Asia Connectivity Initiative, and the Regional Initiative for the Development of the Sahel Region.[4] The Bank also actively supports key regional climate initiatives such as the Middle East Green Initiative.[5]

The IsDB has actively sought out strategic cooperation opportunities, evidenced through its participation in development finance partnerships. For example, the Bank is an active member of the Arab Coordination Group, an alliance of regional development institutions which notably announced successive commitments at COP27 (USD 24 billion) and COP28 (USD 10 billion) to support climate action and energy transition respectively. The IsDB has also shown clear capacity for leadership in relevant international fora, such as through its extensive engagement at COP16 (of the United Nations Convention to Combat Desertification). As part of this, the Bank has notably pledged USD 1 billion as part of the Riyadh Global Drought Resilience Partnership

Notwithstanding the above evidence of the IsDB’s institutional leadership efforts, the Bank simultaneously falls short of best practice among peer institutions on key aspects of institutional climate mainstreaming, such as its energy policy and transparency efforts:

• The IsDB is the only MDB covered by E3G’s Matrix that (as per the latest available data) continues to provide more finance for fossil fuels than for clean energy.[6] Moreover, the Bank has not formally or explicitly adopted any exclusions across its full portfolio on support for fossil fuel operations, with the Climate Change Policy (CCP) explicitly ruling out the establishment of an exclusion list in the context of fossil fuels.[7]
• In terms of transparency, the IsDB does not currently disclose any project-level climate finance data, nor information on financial intermediaries and sub-projects financed. As a result, the Bank is ranked last on both its sovereign (out of 9) and non-sovereign (out of 21) portfolio as part of the 2023 DFI Transparency Index.[8]

Beyond these key areas, the IsDB is also yet to explicitly communicate a clear timeline for the full Paris Agreement alignment of all new approvals (e.g. including non-sovereign operations), as well as the Bank’s institutional alignment in line with the full set of Joint MDB building blocks.[9]

Recommendations: 

• To become a Paris-aligned institutional leader, the IsDB should seek to make further progress on key aspects of institutional climate mainstreaming in line with best practice among peer MDBs. In particular, there remains significant room for improvement in the areas of energy policy and transparency, as well as in defining a clearer pathway for full Paris alignment of all new approvals, and at the institutional level more broadly.
• There is scope for the IsDB to more clearly connect its leading efforts across areas of comparative advantage (such as Islamic finance and South–South cooperation) to its climate action. This could involve seeking to actively facilitate wider replication of existing standout efforts in these areas (such as its green sukuk issuance and examples of the reverse linkage approach for climate action), through the establishment of dedicated initiatives for this purpose.
• The IsDB should seek to leverage its technical capacity and familiarity with leading practice on institutional climate mainstreaming (as a member of the Joint MDB Group) to promote progress among financial institutions across its regions of operation. This could involve establishing a formal cooperation with the Association of National Development Finance Institutions in Member Countries of the Islamic Development Bank (ADFIMI) to support NDBs in member countries in climate mainstreaming. The Working Group on Alignment to the Paris Agreement (WGPA) established by the IDB and ALIDE could represent a useful existing example to inform efforts in this regard.

[1] An Arabic term for the collective (global) community of Muslim people.

[2] See “Promotion of green finance” metric (1) for further coverage of the Bank’s Islamic finance efforts.

[3] Launched in 2022 in collaboration with the UNDP Istanbul International Center for Private Sector in Development (IICPSD).

[4] The former a collaboration with the Multilateral Cooperation Centre for Development Finance (MCDF), and the latter with the United Nations Office of the Special Coordinator for the Development of the Sahel, the Arab Bank for Economic Development in Africa, and the Arab Coordination Group.

[5] Information received directly from the IsDB.

[6] For further details see “Non-fossil to fossil energy ratios and scaling up climate finance” metric.

[7] For further details see “Fossil fuel exclusion policies” metric.

[8] For further details see “Transparency of climate finance” metric.

[9] For further details see “Climate and overarching strategy” metric.