Abstract
This study aims to evaluate risk and return characteristics of Islamic funds in comparison with SRI and investigate the possible synergies between the two in the light of the SDGs. The study also compares the financial performance of Islamic funds with conventional funds and Islamic market benchmarks. The analysis was carried out using the absolute and risk-adjusted-performance evaluation techniques based on data collected from 11 countries distributed in four geographical regions. The results demonstrate that there was no statistically significant difference between the returns of Islamic funds and SRI funds in all regions. Islamic funds were also the least risk-sensitive instruments compared to their counterparts in most of the regions. The results indicate that embedding ESG/SDGs considerations into Islamic funds investment decisions do not adversely affect their returns. Rather, it enhances their positive impact and contribution to mitigate the SDGs financing gaps. The analysis further demonstrates the possible synergies between the two categories of funds in line with Shariah principles. Hence, the study highlights the importance of developing a new asset class, “Shariah-compliant SRIs”, that is both Shariah-compliant and integrates ESG/SDGs considerations. The new asset class will target a wider investor base including both Shariah and impact investors, which will support the achievement of the SDG agenda.
Highlights
A real economy serving the society needs financial institutions, individuals, and enterprises that prioritize societal value over their profitmaximizing goals
From the results demonstrated in the table, it is clear that Islamic funds have a relatively higher Sharpe ratio only compared to the Socially responsible investment (SRIs) in the Americas
The results show that concerning relative performance or Jensen's alpha, all funds and the Islamic markets have negative alpha values; it implies that they do not outperform their benchmarks in Europe and the Asia Pacific
Summary
A real economy serving the society needs financial institutions, individuals, and enterprises that prioritize societal value over their profitmaximizing goals. Their investments should be directed into activities that produce economic resilience and environmental regeneration and social empowerment for the communities and people they serve (GABV, 2017). In 2015, global leaders endorsed the 17 Sustainable Development Goals (SDGs), providing a framework to identify and fund socially beneficial investment. Achieving these aspiring goals; requires significant investments. This gap cannot be mitigated by governments alone and requires the private sector's active participation
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