In the financial world, where profit and return are often the priorities of the average investor, the vehicles we use to reach our monetary goals can be overlooked. We know that mutual funds are able to offer instant diversification to individual investors; they give investors access both to different parts of a nation's economy and to the global marketplace.
But another, perhaps buried, concern is the idea of socially responsible investing. While investing in a big name arms manufacturer may produce a tidy return in a person's portfolio, it can be disturbing to learn that the weapons being manufactured eventually become a payload in some foreign country.
By not investing in stocks that do business in areas such as gambling and the manufacturing of weapons, tobacco, drugs and alcohol products, individuals can impose their own social and moral values on their portfolios.
Furthermore, people can choose to invest in companies they believe are making valuable social and environmental contributions, such as educational companies or companies that make an effort to curb pollution and protect the environment.
Of course, people will have different ideas as to what is socially responsible, ethical or even moral. If investors choose securities in accordance with their own beliefs, it's up to them to choose the investments they consider appropriate. By deciding to invest in companies that are socially responsible and accountable, investors can not only realize financial gain, they can also feel they have contributed to a worthy cause.
Socially responsible investing (SRI) is growing and investors should know the rules other cultures incorporate into their socially conscious investment decisions. SRI mandates have a lot of merit and there is good reason to believe they can be employed to effect social change.
The socially responsible investing movement has worked hard to change corporate policies on a host of social, moral and religious issues such as business investments in politically sensitive parts of the world, workers' rights (sweatshops), the manufacturing of land mines and participation in so-called "sin" industries.
In similar fashion, environmentally aware investors are focused on issues such as global warming, energy efficiency, reduction of carbon footprints, water quality, air quality and a host of similar concerns. As advocates for the environment, they are using their clout as shareholders to put environmental concerns on corporate agendas and hold companies responsible for their actions. In addition, shareholders are showing their concern through shareholder resolutions, allowing shareholders to propose change.
Shariah Compliant Investment vehicles take socially responsible investing (SRI) to a new level, proving that conscious investing does not necessarily depress returns. Hedge funds can turn to specialty shops that specialize in weeding out investments that violate Islamic Law. Non-accredited investors (investors with less than $1 million to invest) can also gain admission by following Shariah indexes or mutual funds.
Islamic law does not permit investors to derive benefits from interest paid on loans, the sale of pork, firearms, and other sin investments related to pornography, gambling, alcohol or tobacco. Institutions that engage in short selling and the use of leverage are also frowned upon since borrowing goes against one of the basic principles of Islamic law.
An investment fund which meets all of the requirements of Shariah law and the principles articulated for "Islamic finance." Shariah-Compliant Funds must follow a variety of rules, including investing only in Shariah-compliant companies, appointing a Shariah board, carrying out an annual Shariah audit and purifying certain prohibited types of income, such as interest, by donating them to a charity.
Islam has laid down with crystal clarity what constitutes the basis of a Shariah-compliant investment. The absence of interest (riba), the presence of certainty (in contracts), and the exclusion of unethical concerns such as alcohol, are the main parameters governing a Shariah-compliant investment.
Purely from a Shariah perspective, investment is strongly encouraged. Islam normally favours the middle-path and therefore the extremes of hoarding wealth and consumption are clearly undesirable from a Shariah viewpoint. The Shariah prefers the balance between these extremes, which is achieved via a diligently prepared Shariah-compliant investment strategy. Moreover, investment usually stimulates economic growth and collective prosperity.
It's important to remember that SRI and Shariah Compliant Investment may not always have a material impact on a company or increase expected investment returns, but you will sleep better at night knowing you've satisfied your moral and ethical goals. In addition to the social benefit derived from choosing investments based on Islamic laws the strategy has also proved to yield positive returns for its investors.
May Allah give us the tawfeeq and hidayah to follow His guidance at every step of our life for His assurance is the greatest inspiration:" And those who strive in Our Cause, We shall Guide them to our Ways. Certainly, Allah is with those who excel in good." (Surah Al-Ankabut 29:69)
Jazakallahhu Khayra for reading this post.
(References mostly from selected Investopedia articles.)
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