Growing in popularity since the global financial crisis, socially responsible investing (SRI) has become an important part of the asset allocation strategy of pension funds and is moving to global shariah investments.
Looking to bolster its returns and promote the Islamic asset management market, Malaysia’s Employees Provident Fund (EPF) announced on June 20 that it was planning to allocate US$24.64 billion of capital towards shariah investments or equivalent to 14.67% of the government fund.
The decision represented the largest allocation to shariah-compliant investments to date and highlighted the growing appetite institutional investors have for shariah assets due to it’s similarity to SRI.
According to data from Cerulli Research, Malaysian shariah wholesale funds assets under management (AUM) grew by 35% year-on-year to MYR31.7 billion in 2015 “largely driven by institutions and corporates’ needs for Shariah-compliant cash management solutions,” states a Cerulli Research report.
“The outlook for Shariah-compliant SRI is positive,” states a Thomson Reuters report on the Islamic asset management industry. “The environment is most promising in Malaysia with the support of the Securities Commission following the launch of the ESG index and guidelines for Sustainable and Responsible Investment sukuk.”
According to data from the Global Sustainable Investment Alliance, SRI investments have increased rapidly. At the beginning of 2014 for example SRI AUM was around US$21.1 trillion up 61% from 2012 levels.
Packaging shariah investing with SRI can be a very effective formula in opening up the Islamic asset management community to the world.
While the future of shariah investing looks bright when coupled with SRI, there are still a number of obstacles holding the market back. Standardization of shariah rules of instance has been a problem for the industry’s development. An investor in Malaysia for example may not accept what is considered shariah-compliant in the Middle East. Moreover, there is a lack of expertise when handling global institutional investors, as most of the largest Islamic asset managers are domestic fund houses.
