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.
Downloads
References
Book
AAOIFI. (2015). Governance standard. Manama: Accounting and Auditing Organization for Islamic Financial Institutions.
Abdelkafi, R., & Bedoui, H. E. (2016). Challenges in infrastructure financing through sukuk issuance. Jeddah: Institute Research and Training Institute, Islamic Development Bank.
Ahmed, H. (2018). The challenge facing Islamic finance and banking: has it moved away from its core objectives, with special reference to maqasid. In: I. Nassery, R. Ahmed, & M. Tatari (Eds.), The objectives of Islamic law: the promises and challenges of the maqasid al-Shari'a (pp. 195-212). London: Lexington Books.
Archer, S., & Ahmed, T. (2003). Emerging standards for Islamic Financial Institutions: the case of the Accounting and Auditing Organization for Islamic Financial Institutions. Washington D.C: The World Bank.
Ayub, M. (2007). Understanding Islamic finance. Chichester: John Wiley & Sons Ltd.
Balz, K. (2010). Breaking the formalist deadlock? Islamic investment and corporate social responsibility. In: S. N. Ali (Ed.), Islamic finance: innovation and authenticity (pp. 247 - 264). Cambridge, Massachusetts: Harvard Law School.
Bifulco, K. (2017). Faith-based investing and sustainability. Siena, Italy: University of Siena.
Binmahfouz, S. S. (2012). Investment characteristics of Islamic investment portfolios: evidence from saudi mutual funds and global indices. United Kingdom: Durham Business School.
Chapra, M. U. (2000). The future of economics: an Islamic perspective. Leicester: The Islamic Foundation.
Chapra, M. U. (2014). Is it necessary to have Islamic economics? In Morality and justice in Islamic economics and finance (pp. 19-40). Cheltenham, UK and Northampton USA: Edward Elgar Publishing.
Chapra, M. U., & Ahmed, H. (2002). Corporate governance in Islamic Financial Institutions. Jeddah: Islamic Development Bank.
COMCEC. (2018). Islamic Fund Management. Turkey: The Standing Committee for Economic and Commercial Cooperation of the Organization of the Islamic Cooperation (COMCEC).
Damak, M., Roy, D., Bendersky, C. B., & Gorce, N. d. l. (2018). Islamic finance and ESG the missing S. New York: Standard & Poor’s.
El-Gamal, M. A. (2000). A basic guide to contemporary Islamic banking and finance. Houston: Rice University. http://www.ruf.rice.edu/~elgamal/files/primer.pdf
Eurosif. (2010). European SRI Study 2010. Brussels: European Sustainable Investment Forum (EUROSIF).
Gillet, P., & Salaber-Ayton, J. (2017). The recent development and performance of ethical investments. In: O. M. Lehner (Ed.), Routledge Handbook of Social and Sustainable Finance (pp. 530–546). Oxford: Routledge.
Global Sustainable Investment Alliance. (2020). 2020 Global Sustainable Investment Review. New York: Bloomberg.
Hawken, P. (2004). Socially responsible investing. How the SRI industry has failed to respond to people who want to invest with conscience and what can be done to change it? California: Natural Capital Institute.
Hayat, U., & Malik, A. (2014). Islamic finance: ethics, concepts, practice. Charlottesville, VA: The CFA Institute Research Foundation.
Hussain, M., Shahmoradi, A., & Turk, R. (2015). An overview of Islamic finance. New York: International Monetary Fund.
Moghul, U. F. (2017). A socially responsible Islamic finance character and the common good. Cham, Switzerland: Palgrave Macmillan.
Naqvi, N. H. (2003). Perspectives on morality and human well-being: a contribution to Islamic economics. Leicester: The Islamic Foundation.
Naqvi, S. N. H. (2013). Islam, economics, and society. London: Routledge Taylor & Francis Group.
Paz, P. T. d. L., Lima, J. d. R., & Alencar, C. T. (2018). Latin America. In: D. Parker (Ed.), The Routledge REITs research handbook (1 ed.). London: Taylor & Francis Group.
Sairally, B. S. (2004). Evaluating the ‘social responsibility’ of Islamic finance: learning from the experiences of socially responsible investment funds. In: M. Iqbal, S. S. Ali, & D. Muljawan (Eds.), Advances in Islamic Economics and Finance (pp. 279 -320). Jeddah: Islamic Development Bank Group.
Schwartz, D. G. (2006). Roll the bones: the history of gambling. New York: Gotham Books.
Sparkes, R. (2002). Socially responsible investment: a global revolution. Chichester: John Wiley & Sons Ltd.
Statman, M. (2005). The religions of social responsibility. Santa Clara: Santa Clara University.
United Nations. (2018a). Achieving the SDGs: unleashing the potential of Islamic finance through innovative investors and instruments. New York: United Nations.
United Nations. (2018b). Islamic finance and impact investing. Istanbul: United Nations Development Programme.
Usmani, M. T. (2002). An introduction to islamic finance. The Hague: Kluwer Law International.
Journal
Abdelsalam, O., Duygun, M., Matallín-Sáez, J. C., & Tortosa-Ausina, E. (2014). Do ethics imply persistence? The case of Islamic and socially responsible funds. Journal of Banking & Finance, 40, 182-194.
Agaoglu, F. (2014). Religious perspective of busines ethics principles in Turkey and Romania: a cross country comparison. SEA - Practical application of Science, 11(3), 11-22.
Ahmad, S. M. (1981). Judaism and interest. Islamic Studies, 20(1), 47-82. http://www.jstor.org/stable/20847156
Anas, E., & Mounira, B. A. (2009). Ethical investment and the social responsibilities of the Islamic banks. International Business Research, 2(2), 123-130.
Anwar, M. (1991). The role of Islamic financial institutions in the socio-economic development in Malaysia. The Pakistan Development Review, 30(4), 1131 - 1142.
Asutay, M. (2012). Conceptualising and locating the social failure of Islamic finance: aspirations of Islamic moral economy vs the realities of Islamic finance. Asian and African Area Studies, 11(2), 93-113.
Asutay, M., & Harningtyas, A. F. (2015). Developing Maqasid al-Shari’ah Index to evaluate social performance of Islamic banks: a conceptual and empirical attempt. International Journal of Islamic Economics and Finance Studies, 1(1), 5-64.
Beekun, R. I., & Badawi, J. A. (2005). Balancing ethical responsibility among multiple organizational stakeholders: the Islamic perspective. Journal of Business Ethics, 60(2), 131-145.
Bennett, M., & Iqbal, Z. (2013). How socially responsible investing can help bridge the gap between Islamic and conventional financial markets. International Journal of Islamic and Middle Eastern Finance and Management, 6(3), 211-225. https://doi.org/doi:10.1108/IMEFM-Aug-2012-0078
BinMahfouz, S., & Hassan, M. K. (2013). Sustainable and socially responsible investing: does Islamic investing make a difference? Humanomics, 29(3), 164-186. https://www.emeraldinsight.com/doi/pdfplus/10.1108/H-07-2013-0043
Brammer, S., Williams, G., & Zinkin, J. (2007). Religion and attitudes to corporate social responsibility in a large cross-country sample. Journal of Business Ethics, 71(3), 229-243. http://www.jstor.org/stable/25075330
Charfeddinea, L., Najah, A., & FrédéricTeulon. (2016). Socially responsible investing and Islamic funds: new perspectives for portfolio allocation. Research in International Business and Finance, 36, 351-361.
Dion, M. (2009). Christian mutual funds, codes of ethics and corporate illegalities. International Journal of Social Economics, 36(9), 916-929. https://doi.org/doi:10.1108/03068290910978062
Dusuki, A. W. (2008). What does Islam say about corporate social responsibility? Review of Islamic Economics, 12(1), 5-28.
Dusuki, A. W., & Abdullah, N. I. (2007). Maqasid al-Shari`ah, maslahah, and corporate social responsibility. The American Journal of Islamic Social Sciences, 24(1), 24-45.
Hasan, Z. (2016). From legalism to value-oriented Islamic finance practices. Humanomics, 32(4), 437-458.
Hashim, A. M., Habib, F., Isaacs, Z., & Gadhoum, M. A. (2017). ISRA-Bloomberg Sharīʿah stock screening and income cleansing methodologies: a conceptual paper. ISRA International Journal of Islamic Finance, 9(1), 27-42.
Hellsten, S., & Mallin, C. (2006). Are ‘ethical’ or ‘socially responsible’ investments socially responsible? Journal of Business Ethics(66), 393–406.
Hurayra, M. A. (2015). Achievement of maqasid-al-Shari`ah in Islamic Banking: an evaluation of Islamic bank Bangladesh limited. Global Journal of Computer Science and Technology: A Hardware & Computation, 15(1), 9-15.
Iqbal, Z. (1997). Islamic financial systems. Finance and Development, 34(2), 42-45.
Jonsson, S., & Regnér, P. (2009). Normative barriers to imitation: social complexity of core competences in a mutual fund industry. Strategic Management Journal, 30, 517–536.
Kahf, M., & Al-Hajjaji, E. M. (2019). Analysis of Sharī‘ah based equity screenings: developing a Sharī‘ah-compliant index for Qatar Stock Exchange. Islamic Economic Studies, 26(2), 1-41.
Kamla, R., & Rammal, H. G. (2013). Social reporting by Islamic banks: does social justice matter? Accounting, Auditing and Accountability Journal, 26(6), 911-945.
Kayed, R. N., & Hassan, M. K. (2011). The global financial crisis and Islamic finance. Thunderbird International Business Review, 53(5), 551-564. https://doi.org/10.1002/tie.20434
Laldin, M. A., & Furqani, H. (2013). The foundations of Islamic finance and the maqāṣid al-Sharīʻah requirements. International Journal of Islamic and Middle Eastern Finance and Management, 6(4), 278-289.
Lewis, M. K. (2010). Accentuating the positive: governance of Islamic investment funds. Islamic Accounting and Business Research, 1(1), 42 - 59.
Mahfooz, S. b., & Ahmed, H. (2014). Sharīʿah investment screening criteria: a critical review JKAU: Islamic Econ, 27(1), 3-38.
Malik, I. (2014). An introduction to Islamic banking (rise and development). Journal of Islamic Banking and Finance, 2(1), 261-268.
McCann, L., Solomon, A., & Solomon, J. F. (2003). Explaining the growth of U.K. socially responsible investment. Journal of General Management, 28(4), 15-36.
Mian, K. M. A. (2008). Shariah screening and islamic equity indices. Islamic Finance News, 17, 5.
Miglietta, F., & Forte, G. (2011). A comparion of socially responsible Islamic equity investments. Journal of Money, Investment and Banking, 21(21), 116-132.
Mir, U. R., Hassan, S. M., & Hassan, S. S. (2017). Islamic perspective of corporate social responsibility Islamic Perspective of Corporate, 31(46), 77-90.
Moghul, U. F., & Safar-Aly, S. H. K. (2014). Green sukuk: the introduction of Islam’s environmental ethics to contemporary Islamic finance. The Georgetown International Environmental Law Review, 27(1), 1-60.
Mohamad, S. (2014). Is Islamic finance, social finance? Journal of Emerging Economies and Islamic Research, 2(2), 1-5.
Mohamad, S., Lehner, O. M., & Khorshid, A. (2016). A case for an Islamic social impact bond. ACRN Oxford Journal of Finance and Risk Perspectives, 5(2), 65-74.
Mohammad, M. O., & Shahwan, S. (2013). The objective of Islamic economic and Islamic banking in light of maqasid al-shariah: a critical review. Middle-East Journal of Scientific Research (Research in Contemporary Islamic Finance and Wealth Management), 13, 75-84.
Nienhaus, V. (2011). Islamic finance ethics and Shariah law in the aftermath of the crisis: concept and practice of Shariah compliant finance. Ethical Perspectives, 18(4), 591-623.
Novethic. (2009). Islamic finance and SRI: any crossover? Islamic Finance News, 6(29), 14. http://www.eurekahedge.com/NewsAndEvents/News/525/Islamic_Finance_and_SRI_Any_Crossover
Paranque, B., & Erragragui, E. (2016). Islamic Investment versus socially responsible investment: lessons from comparison. Finance Reconsidered: New Perspectives for a Responsible and Sustainable Finance, 10, 355-383. https://doi.org/doi:10.1108/S2043-905920160000010034
QInvest. (2017). Taking a stand: ‘ethical’ finance is not Islamic. Islamic Finance News, 14(40).
Reddya, K., Mirzab, N., Naqvic, B., & Fu, M. (2017). Comparative risk adjusted performance of Islamic, socially responsible and conventional funds: evidence from United Kingdom. Economic Modelling, 66, 233-243.
Renneboog, L., Horsta, J., & Zhang, C. (2008). Socially responsible investments: institutional aspects, performance, and investor behavior. Journal of Banking & Finance, 32(9), 1723-1742.
Rennebooga, L., Horsta, J. T., & Zhang, C. (2008). Socially responsible investments: Institutional aspects, performance, and investor behavior. Journal of Banking & Finance, 32(9), 1723-1742.
Wilson, R. (1997). Islamic finance and ethical investment. International Journal of Social Economics, 24(11), 1325-1342.
Yan, S., Ferraro, F., & Almandoz, J. (2019). The rise of socially responsible investment funds: the paradoxical role of the financial logic. Administrative Science Quarterly, 64(2), 466-501. https://doi.org/10.1177/0001839218773324
Yusof, R. M., Bahlous, M., & Kassim, S. (2010). Ethical investment and Shari'ah-compliant investment compared: can investors benefit from diversification? Savings and Development, 34(3), 389-412.
Website
Bennett, M. (2015). Vaccine sukuks: Islamic securities deliver economic and social returns. World Bank Group. https://blogs.worldbank.org/arabvoices/vaccine-sukuks-islamic-securities-deliver-economic-and-social-returns (accessed on 30 September 2019)
Hayat, U. (2013). Sustainable investing: opportunity awaits Islamic finance industry. Gulf News. https://gulfnews.com/business/banking/sustainable-investing-opportunity-awaits-islamic-finance-industry-1.1228584 (accessed on 1st April 2019)
PwC (2022). Islamic finance & ESG investing: ready for convergence?, PwC Middle East. https://www.pwc.com/m1/en/publications/islamic-finance-and-esg-investing.html (accessed on 29 April 2019)
S&P Global (2021). IFN Islamic sustainable investing thought leadership report, Islamic Finance News, REDmoney Group Sdn Bhd. https://www.islamicfinancenews.com/combining-esg-and-islamic-finance-principles-in-an-index-framework.html (accessed on 1st May 2024)
Saloom, A. A. (2012). Why pork is forbidden for Muslims. The National. https://www.thenational.ae/arts-culture/ask-ali-why-pork-is-forbidden-for-muslims-1.444442 (accessed on 1st May 2024)
Statistica. (2023). Islamic financial sector - statistics & facts. Statista Inc. https://www.statista.com/statistics/957839/electronic-money-transactions-valuemalaysia/#:~:text=The%20value%20of%20electronic%20money,billion%20from%20the%20previous%20year (accessed on 1st May 2024)
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Rafisah Mat Radzi
This work is licensed under a Creative Commons Attribution 4.0 International License.
