by AMIR AIMAN / graphic by MZUKRI MOHAMAD

SHARIAH-BASED investments are moving towards adopting sustainable concepts investment namely the environmental, social and corporate governance (ESG) principles, hence narrowing the investment scope further.

RHB Research analyst, Alexander Chia noted the similarities between Shariah and ESG are uncanny due to the selection criteria for their underlying investments such as the call for justice, empowerment for all stakeholders, ethical practices and social responsibilities.

“Investors who are concerned about ESG factors in their investments can consider Shariah funds as an alternative, as such funds can also be classified as ESG-based investments. Contrarily, enforcing ESG values within the practices of Shariah investments will motivate investors to not only be aware of the Shariah principles but also question the purposes and impacts of the business on society and the environment,” he wrote in a report yesterday.

Based on the Sustainable Investment Review 2021, global ESG investment increased 3.5 times in the last decade to US$35.3 trillion (RM146.85 trillion), equivalent to a compound annual growth rate of 13.5%, while total assets under management of Islamic funds globally grew 31.9% in 2020.

“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.

Chia added the impact of socially responsible investing with Islamic propositions can award added advantages including reducing uncertainty in the business community, maintaining stability by removing speculation and promoting sustainable businesses that improves the welfare of societies.

He further noted that ESG investing is a broad approach where there are no widely accepted guidelines but combining it with acknowledged Shariah principles will provide a clearly defined and regulated investment practices.

This is due to the relative maturity of Islamic finance development as compared to the more recent emergence of ESG integration in investing, he added.

“Shariah investing will not merely consider compliance alone but will go beyond by taking into account social and environmental impacts in order to contribute to the community as a whole,” Chia noted.

He also noted it should no longer be viewed from an Islamic legal perspective alone as Shariah makes no distinction between legal imperatives and moral obligations.

Bursa Malaysia has launched the FTSE4Good Bursa Malaysia Shariah Index to meet the investment community’s sustainable and Shariah-compliant investment needs.