Market for Shariah-compliant ESG investments set to expand

There could be dramatic growth in the number of investment funds that combine ESG and Shariah compliance during the next two years.

Research undertaken by Maybank Islamic Berhad, the Islamic banking arm of the Malaysian company Maybank Group, and IslamicMarkets.com, found that over a third of leading Islamic finance professionals expect increased availability of such products.

The research, which was undertaken in support of a forthcoming forum, Driving Sustainable Impact Through Islamic Finance, surveyed 143 professionals working in Islamic finance and found that while 36% expect dramatic growth, 49% expect only a slight increase in the number of fund launches.

Furthermore, 73% of these professionals, who work for organisations including asset managers, banks, insurers, fintechs and consultancies, believe demand for ESG investment strategies is not being met by the Islamic finance market.

However, if investment products were certified as both Shariah and ESG-compliant, more non-Muslims than Muslims would buy them given the strong demand for ESG in Europe and the introduction of a global standard for ESG and Shariah would boost demand according to 72% of survey respondents.

The launch of a global standard is two years or more away, according to 55% and just over half (52%) expect good progress or even dramatic progress in the next two years on the adoption of a unified global legal and regulatory framework for Islamic Finance.

“Islamic finance is indeed growing strongly but we believe the growth could be further boosted if it was able to offer Shariah and ESG compliant funds globally,” said Maybank Islamic chief executive officer, Dato’ Mohamed Rafique Merican. “This study is showing that potential demand for such funds would rise from the traditional as well as the non-Muslim investors.”