KUALA LUMPUR: Global investment manager Schroders and Maybank Islamic Bhd have launched a thought paper exploring the alignment of Shariah and sustainable investing.
The paper’s key message is that investors including fund managers like the Employees Provident Fund and Permodalan Nasional Bhd which embrace Shariah principles when investing, should also be open to the ideas of sustainable investing.
Schroders and Maybank Islamic said in a joint statement on Monday the incorporation of sustainability considerations was both complementary in philosophy to Shariah investing, and had the potential to improve investment outcomes.
Schroders head of distribution Southeast Asia Lily Choh said: “As the paper has found, formal integration of sustainability within a Shariah portfolio recognises that sustainability principles are at the core of Islamic beliefs, a fact which has failed to receive the prominence it deserves among traditional Shariah investment products.”
The thought paper noted that traditionally, Shariah investing tend to exclude companies that do not comply with Shariah principles due to their harmful effects to society.
These companies involve those engaging in activities that include alcohol, gambling, adult entertainment and non-Shariah compliant finance and when the revenues they derive from these activities exceed 5 per cent.
“It further found that if investors were to start with a blank slate using Shariah principles as the anchor for their portfolio construction, sustainability considerations are likely to feature strongly - implying that this singular focus of the Shariah investment industry is all set for an alignment with sustainable investing,” it said.
Choh said this should pave the way for the asset management industry to explore and develop more innovative solutions for the global Muslim community.
There are some 1.8 billion Muslims globally, representing about a quarter of the world population.
Despite these numbers, Muslims have been underserved by the asset management industry, with limited innovation in product offerings and low growth in assets.
As of June 2019, only US$3 billion was invested globally in Shariah global equity funds.
Maybank Islamic chief executive officer Datuk Mohamed Rafique Merican said the findings of the paper indicated that Muslims do not have to compromise their religious beliefs and their desire to invest in a sustainable manner, given that the underlying principles of both Shariah and sustainable investing are very closely aligned.
“Maybank Islamic is pleased with the findings of its collaborative report with Schroders and is hopeful that this would encourage the industry to explore products and offerings that comply with the principles of both Shariah and sustainable investing,’ he added.