Socially Responsible Investment And Shariah-Compliant Investment: An Assessment Of Current Screening Norms
Keywords:
SRI, Islamic Finance, Shariah, CompliantAbstract
Socially responsible investment (SRI) and Islamic finance are religious-based investments that are committed to the concept of ‘do good’ and ‘avoid harm’. Although Islamic finance must abide by the maqasid-Shariah (objectives of Islamic law), which also covers environmental, social, and governance (ESG) sectors, scholarly debate has emerged regarding less consideration of Islamic finance engagement in such sectors. Premise on this issue, this study analyzes critically the extent to which investment in SRI practices accords with Islamic tenets, including assessment of their screening investment strategies. This study further evaluates factors limiting engagement of Shariah compliance with broader ESG. By employing content analysis, these issues are analyzed based on secondary data, largely in the form of literature, guidelines, statutes, reports, and precedents that deal with SRI and Shariah investment. This study concludes that the screening strategy is relatively new to contemporary Islamic finance compared to conventional ones, and a narrow interpretation of the Shariah framework has resulted in limiting the engagement of Shariah compliance with broader ESG criteria. This study proposes that in order to effectively uphold the maqasid-Shariah, Islamic banking and finance should ensure that all transactions adhere to Shariah principles, focusing not only on legal technicalities and formalities but, more importantly, on the economic substance rooted in maqasid-Shariah.
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