- ESG and Shariah investing are two different options available to investors. They have similar objectives, however being one doesn’t automatically make the other.
- Combining the two approaches can create a stronger portfolio for investors' long-term benefit.
- UOBAM (Malaysia) headquarters the Group's Islamic Centre of Excellence providing a wealth of experience and expertise in enhancing our sustainable and Shariah investing capabilities.
Shariah-based investing aims to fulfil the objectives of promoting the welfare of humankind and prevent harm by preserving religion, life, intellect, the interests of future generation, and wealth. Embracing like-minded values as Shariah-based investing, SRI has also gained greater attention and developments of the global economy have swiftly been reflected in investors' decisions1.
Assets allocated into sustainable investments have indeed accelerated this year, especially amidst the COVID-19 pandemic2. It has given investors reason to reassess the importance of being sustainable in what we do and how we invest, and has also brought about a stronger focus on the social role of the investment community. With the disruption to our daily activities, from where we go to how we interact with others, comes opportunities to reimagine what is possible to create a better world for future generations.
A survey conducted by State Street Global Advisors3 concluded that 80% of institutional investors are inclined towards selecting Environmental, Social, and Governance (ESG) criteria as part of their investment strategies. The world is now searching for and investing in companies that look not just at returns to shareholders but also consider environmental and social costs. Asia in particular has gained pace in its progress within the realm of ESG and Sustainability4.
The overlap between Shariah investing and sustainable investing is clear - both forms of investing have the same objective of doing good – one from a religious perspective and the other from a social responsibility perspective. As both Shariah principles and sustainable investing promote governance, stewardship and value creation, we believe that combining these complementary approaches will create a stronger portfolio for investors’ long-term benefit and Shariah-based investing is a natural fit for investors who are committed to making a positive impact.
Shariah-based investing prohibits interest, security lending and short-selling. It also incorporates negative screening to exclude sectors such as tobacco, alcohol and breweries, weapons and armaments, as well as other non-halal products. Shariah principles are further complemented with sustainable investing, through the use of ESG in the investment process. ESG uses positive screening as a means of selecting the best performing companies that offer environmentally-friendly products and services, or have socially responsible business practices. These companies are believed to be more resilient and better prepared to meet future challenges and outperform their broader market peers in the future, while allowing investors to align their investments towards the United Nations Sustainable Development Goals (UN SDGs).
Through our research and data back-tests, we have found that this has been reflected in the markets as well. For the last 3 years, annually, both ESG & Islamic indices tend to outperform their traditional index.
|Annual Performance5||2018 (%)||2019 (%)||2020 (%)|
|Morgan Stanley Capital International All Country (MSCI AC) Asia ex Japan ESG Leaders||-14.27||21.40||28.53|
|MSCI AC Asia ex Japan Islamic||-16.68||21.85||27.05|
|MSCI AC Asia ex Japan Index||-14.12||18.52||25.36|
Recognising the emerging needs of investors committed to making a positive impact, UOB Asset Management (UOBAM) has enhanced its research and investment processes with the integration of ESG considerations and fundamental analysis by employing cutting edge financial technology and artificial intelligence in portfolio construction.
To help businesses advance responsibly, we also engage with portfolio companies to help improve the sustainability of their practices. In performing fiduciary duties, UOBAM plays its part in addressing the social and environmental risks and opportunities that the world is facing.
UOBAM (Malaysia) headquarters the Group's Islamic Centre of Excellence. Malaysia, being the third-largest market for global Islamic finance products6 and the world's largest issuer of Islamic bonds7 , has had innovative and diverse issuances such as green and sustainable sukuks.
The Securities Commission Malaysia and Bursa Malaysia has also started to reinforce SRI as a key theme in investments6,8, making Malaysia an important hub for shariah-compliant investments in the region.
Malaysia provides an opportune landscape offering a wealth of experience and expertise in enhancing both our sustainable and Shariah investing capabilities.
Sustainable investing is becoming a major force across global financial markets, with the convergence of government regulations, heightened awareness and values, and an overall evolution of attitudes toward sustainability, and the time is ripe for investors to go a step further in ensuring their investments provide long term value. As data and analysis on ESG grows, investors have the opportunity to invest in companies that align with their beliefs and are well-positioned to outperform their peers.
Learn more about Shariah Investing
1Consumer News and Business Channel (CNBC) – "Sustainable investing is surging. How to decide if it's right for you", November 2020.
2The Edge Markets – "Sustainability: ESG becoming mainstream", January 2021.
3State Street Global Advisors, ESG Institutional Investor Survey, April 2018.
4Societe Generale – "Asia is catching up on ESG investing, yet presenting promising opportunities", December 2021.
5Bloomberg, May 2021.
6The Malaysian Reserve – "Islamic finance sector to hit RM3 trillion this year, says Bursa Chairman", June 2020.
7Bondsupermart – 'Malaysia's Bond Market Landscape", January 2021.
8The Asset – 'Malaysia expands green SRI sukuk grant scheme', January 2021.
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