“The tenets of Shari’ah compliance are where SRI began; it was an awareness of aligning investments with a values approach. It covers the ‘S’ part of ESG, incorporates governance, and has an explicit financial component. So, it’s like ‘ESGF. ”
— Patrick Drum
Patrick Drum leads the Environmental, Social & Governance investment research at Saturna Capital, a private investment management firm with $5.5 billion in assets under management. He is the portfolio manager for Saturna’s Sustainable Global Fixed Income Fund; the Amana Participation Fund (the oldest and largest family of funds in the United States following principles of Islamic finance), and the firm’s institutional subsidiary, Saturna Sdn. Berhad in Kuala Lumpur, Malaysia.
Drum holds a BA in economics from Western Washington University and an MBA from Seattle University Albers School of Business and is a CFA® Charterholder and Certified Financial Planner®.
Previously, Drum was Chairman of the United Nation’s Principles for Investment (UNPRI) Fixed Income Outreach Subcommittee and an adjunct professor of finance for the Sustainable MBA Program at Pinchot’s Bainbridge Graduate Institute.
In our discussion, we hear about Patrick’s early career and how he came to be involved in sustainability back in 2008. We learn that about 50 percent of investors in Saturna’s Sharia compliant funds are not of the Muslim faith and discuss why a non-Muslim investor might be attracted to investing in their funds. Patrick describes the basic tenets of Sharia compliance, he speaks about the debt-like instrument that is called a ‘Sukuk’ and explains how they differ from traditional bonds. We hear about the screens Saturna uses and how each investment goes through a ‘Fatwa’ by a recognised Sharia body, and much more.
I really enjoyed this far reaching discussion with Patrick and I hope you will too.
Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Castbox, Google Podcasts, Amazon Music, or on your favorite podcast platform. You can watch the interview on YouTube here.
What was your favorite quote or lesson from this episode? Please let me know in the comments.
SCROLL BELOW FOR LINKS AND SHOW NOTES…
SELECTED LINKS FROM THIS EPISODE:
- Connect with Patrick Drum: LinkedIn
- Aramco
- Barry-Callebaut
- Carrefour
- Citi
- Dean Witter Reynolds
- Dow Jones
- DP World
- Fatwa
- FTSE Sukuk Index
- Halal investing
- Haram
- ICMA
- MMC Healthcare
- Murabaha
- RAM
- Riba
- Saturna
- Saturna Amana Fund
- Securities Commission Malaysia (SC)
- Sharia
- Sukuk
- Sustainalytics
- Tadau Energy
- UBS
- Unilever
- UNPRI
- US T-bills
- Washington Mutual
SHOW NOTES:
[00:00] Episode introduction
[05:15] How Patrick came to work in finance, starting as a mail clerk with Dean Witter Reynolds
[05:58] Patrick shares how he first became involved in sustainability in 2008
[06:58] We hear about Saturna Capital and the genesis of their signature fund, the ‘Amana Participation Fund’
[08:26] Sharia compliance and what it means in the investment world
[10:13] How Patrick came to chair the UNPRI Subcommittee of Fixed Income Outreach
[14:00] Patrick describes his role at Saturna and the two funds he manages
[18:05] We discuss what attracts non-Muslim investors to invest in Saturna’s Sharia compliant funds
[19:05] Patrick presents Saturna’s three main fund families
[20:28] Patrick gives us an overview of Sharia Compliance Investing for Muslim investors
[27:50] The definition of a Fatwa
[29:27] We learn about Saturna’s screening process
[31:21] The definition of Murahaba and how it is Sharia compliant
[32:32] How a green sukuk differs from a regular sukuk
[37:40] Patrick provides an example of a green sukuk
[40:18] We hear about the benchmarks used for the Sukuk fund
[43:25] How Saturna’s fixed income fund compares against traditional, fixed income funds
[49:16] We hear how Saturna’s funds performed during the Covid pandemic
[50:40] Patrick shares the Muslim community’s views on climate change in the Islamic world
[56:38] The ‘spirituality of imperfection’ and what it means
[57:04] The single most important challenge in the ESG fixed income space at this time
[57:27] What Patrick knows now about ESG investing that he wishes he had known when he joined Saturna
[58:31] Lessons learned from an investment that didn’t go to plan
[01:00:43] An example of an investment that worked out better than expected
[01:02:10] Patrick shares his advice on how to get into the ESG or Islamic investing space
MORE PATRICK DRUM QUOTES FROM THE INTERVIEW:
“85% of the world does not live in the developed world and a large part of them live on a very small form of income. So if we’re able to make changes in 85% of the world’s population, we’re elevating the game for everyone. ”
— Patrick Drum
“We all aspire for the enlightenment to navigate life with a sense of purity and faith. But we’re humans stuck in the mud, and we live with gravity. And so the reality is, we have to navigate into a conventional framework of best in-class, and saying ‘while we’re aspiring, we’re going to have to walk a bit through the mud and get a bit dirty in that process’. That’s the spirituality of imperfection. ”
— Patrick Drum
“I’ve found sustainability has some interesting attributes…but I’ve always been focused on traditional finance, traditional accounting. And it’s because I’m that reluctant guy and that naysayer, that I’m going to give it that added discernment of review. I’m not in the parade that says ‘I’m going to try to do good.’ I’m in the parade where it needs to make business sense.”
— Patrick Drum
“In sustainability finance – there’s sort of a soft, dark side of sustainability – where we’re placing a normative standard that, all of a sudden, [the developing world’s] industries are ‘bad.’ Yet we went there to exploit that, build it up, take it away. And now, all of a sudden, we’re telling them they need to change their business model to adopt to our normative views.”
— Patrick Drum’
PEOPLE MENTIONED:
