The asset management industry underserves the world’s roughly 1.8 billion Muslims, as highlighted by some US$3 billion invested in shariah global equity funds versus $133 billion-plus ploughed into sustainable and responsible investment stocks, despite their similar guiding principles, according to a study by UK fund manager Schroders and Malaysia’s Maybank Islamic.
The research report, published on November 12, notes that product innovation targeted at Muslim investors is limited and shariah asset growth is low. It points out that most of the shariah global equity funds have assets of less than $25 million.
The similarities between shariah and sustainable investing are such that Muslims don’t have to "compromise between their religious beliefs and their desire to invest in a sustainable manner, given that the underlying principles are so closely aligned", says Maybank Islamic Chief Executive Officer Mohamed Rafique Merican.
"We believe that by bridging this divide, the global shariah investment industry can grow and better serve the Muslim community," he says in a news release issued with the report.
Part of the reason for the chasm between shariah and sustainable investing assets is a dearth of products that formally combine the principles of both strategies.
So Muslim investors face two competing options: shariah-compliant funds that don’t pay formal heed to environmental considerations, and traditional sustainable investment funds that are not shariah-compliant.
The report acknowledges that neither choice is satisfactory. “The traditional exclusionary focus of the shariah investment industry is ripe for disruption," it says.
According to Jessica Ground, global head of stewardship at Schroders, the growth of sustainable analysis and data gives Muslim investors an opportunity to move beyond "mere compliance, to holistically express their values and assess the impacts of their investments".
"A shift towards a more explicit focus on sustainability is both in keeping with the teachings of Islam and aligned with what investors worldwide are increasingly demanding,” she says in the report.
London-based Schroders had £444.40 billion ($570.42 billion) of assets as at June 30, 2019.
Maybank Islamic is a unit of Malayan Banking Group, Malaysia’s largest lender.