Last year, our team actively engaged with a Chinese sportswear company. We had owned the stock for over four years, and it had been one of our best performers. Sports participation in China was on the up: in 2001 there were 20 marathons across the country, but by 2019 (before the pandemic struck) there were almost 2,000 – that’s a lot of extra running shoes! But over time we became increasingly anxious about reports coming through on the possible use of forced labour in China’s cotton supply chain. We began talking to the company, as we wanted more details about its suppliers, as well as its suppliers’ suppliers, all the way down to the cotton farm. However, after much back and forth, we couldn’t get the assurances we needed, so we felt we had no choice but to divest.

A few months later, I took on a new Shariah-compliant mandate. I’d managed conventional funds across emerging markets for over 15 years, but this was my first chance to manage a Shariah mandate and I was excited at the prospect. As I glanced through the companies included in the MSCI Islamic Index, one company in particular jumped out at me: the same sportswear company we had recently divested in. And that got me thinking – why wouldn’t Islamic investing consider labour rights too?

Looking at ‘how’, not just ‘what’ 

Most typical Shariah-compliant equity funds focus solely on exclusion. They use a mechanical screening process to identify and exclude companies that produce forbidden products like alcohol, tobacco, weapons, pork, gambling, and adult entertainment, as well as conventional banking, finance and insurance. Shariah funds rarely go beyond this initial screening process, neglecting to additionally consider, for the companies which remain investable, how their products or services are produced. So naturally this sportswear company made it through – no questions asked.


While I’m no scholar of Islam, I happen to be Muslim, and this screening seemed like a low bar to me. Is that really all God wants from us? It also occurred to me that I might not be the only one feeling this way.

Shariah funds struggling to gain traction – unlike sustainable investing 

Perhaps this could go some way in explaining why Shariah-compliant equity funds have struggled to grow. Muslims account for a quarter of the world’s population, but less than 0.2% of assets under management are Shariah compliant1. Meanwhile, sustainable funds are capturing almost a third of all inflows into mutual funds and ETFs2, demonstrating the surging global demand for investment opportunities that take ESG factors into consideration. While investors in Asia and the Middle East are sometimes perceived as lagging behind the West in terms of ESG considerations, data actually suggests that sustainability and climate change is often a greater consideration in Asia and the Middle East than other areas of the world3. Could another approach allow Muslims to incorporate broader Islamic values more effectively into their investments?

Reflecting the true values of Islam 

I thought about what I would want from an Islamic fund – after all, I might be the fund manager, but I’m also the target customer. Sure, I would want exclusions, but I would also want more. I remembered my Quran studies as a child, being taught the concepts of Halal (lawful/permissible) and Tayyib (good/ethical), and how you can’t just focus on one without the other. I also learnt sayings of the Prophet Muhammed (or Hadith): ‘Pay the worker his dues before his sweat has dried up’; ‘Do not give them work that will overburden them’; ‘Those workers are like your brothers’. To me, it’s obvious that God would want workers to be paid fairly and not to be mistreated. So why are so many Islamic funds looking the other way?

It’s not just labour rights. There are many other companies included in major Shariah-compliant equity indices that could be viewed as problematic, including several oil & gas companies. As these companies are ‘Halal’, they are automatically included in Shariah indices, though they can have serious negative impacts on the planet. By including these companies without question, we could risk overlooking the fact that of course God wants us to take care of the planet too: ‘Walk gently upon the earth’ (Quran 25:63); ‘The earth is green and beautiful, and God has appointed you his stewards over it’ (Hadith).

So, my team and I set about creating a Shariah mandate where we try our best to be good stewards, investing in not just what is permissible (Halal) but also good (Tayyib).

Our team’s approach 

ESG considerations have been a key part of our team’s investment process for many years. We want to really understand the businesses behind our investments – not just in terms of the products they sell or services they provide, but also how they make or provide their products or services, and the impact they have more broadly on society and the planet. We don’t just rely on ESG screens or third-party scores – we take an active approach. Who manages the company, what are the values of its management team, and how do they treat their employees? Does the company have a positive or a detrimental impact on wider society? What impact does it have on the environment locally and globally; what is its carbon footprint, and does it have, and will it meet, net-zero targets? These are just some of the questions we ask before making any investments.

Only through direct engagement are we able to build a clearer picture of a company. Through ongoing discussions with the companies we’re invested in, we can encourage positive change, while avoiding businesses that do not align with our beliefs.

And to me, this approach makes perfect sense for Shariah investing too. That’s why our Shariah mandate goes beyond a simple exclusions screen, to look closely at the companies we hold to understand their social and environmental impact as well. By considering whether a company is not only Halal but also Tayyib, an approach like ours can better reflect the values and principles of Islam.
1 Source: Morningstar, October 2022
2 Source: Broadridge, 12 months to Sept 2021
3 Source: Schroders & Maybank Islamic, November 2019

The value of active minds: independent thinking

A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.

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