KUALA LUMPUR: Shariah investing will not merely consider compliance alone in the future but will go beyond, taking into account social and environmental impacts, RHB Research analyst Alexander Chia said.
Chia said it should no longer be viewed from an Islamic legal perspective alone, as shariah makes no distinction between legal imperatives and moral obligations.
He said a good starting point is Bursa Malaysia's recently launched FTSE4Good Bursa Malaysia Shariah Index, which will meet the investment community's sustainable and shariah-compliant investment needs.
"Shariah and ESG investing is starting to converge, as shariah investment is moving towards adopting ESG principles, hence narrowing the investment scope further.
"This is also likely to result in screening for good quality investible companies that will outperform in the long term," he said in a report today.
Chia said based on the Sustainable Investment Review 2021, global ESG investment increased 3.5 times in the last decade to US$35.3 trillion, equivalent to a compounded annual growth rate (CAGR) of 13.5 per cent.
In contrast, total asset under management of Islamic funds globally grew 31.9 per cent in 2020.
He said socially responsible investing with Islamic proposition brings added advantages, including reducing uncertainty in the business community, maintaining stability by removing speculation, and promoting sustainable businesses that improve the welfare of societies.
"Shariah and ESG both promote ethical considerations and social responsibility due to the selection criteria for their underlying investments.
"As such, we believe there are opportunities for shariah investment to capitalise on the increasing popularity of ESG investing, given their shared principles," he added.