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ESG - Shariah Compliant Screener


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Investments which are in accordance with the Islamic Principles are called Sharia Compliant.

There are three principal rules which need to be adhered to when analysing an investment from the standpoint of Sharia permissibility are:

  1. Absence of interest in the investment.
  2. Potential for “unethical” concerns in the investment mix – this includes exposure to companies involved in gambling, adult entertainment, tobacco and alcohol.
  3. Islamic finance places great emphasis on the validity and transparency of contracts.

Sharia Compliance can be evaluated across one metric: 'Islamic Non-Compliant'. This is calculated as the percentage of a securities or portfolio’s market value exposed to companies that are non-compliant according to Sharia investment principles. Non-compliant companies are those with ownership of a prohibited business activity or total revenues greater than or equal to 5% from prohibited business activities or with financial ratios greater than or equal to 33.33%. Prohibited business activities include adult entertainment, alcohol, cinemas, conventional financial services, gambling, music, pork, tobacco and weapons.

It would be very useful to add this metric to IG's broader ESG screening tool.

 

 

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