Integrating Sharia and SRI Portfolio to Achieve Kaffah and Sustainability
Article Sidebar
Read Counter : 411
Download : 2
Main Article Content
Abstract
This study explores integrating Sharia principles with Socially Responsible Investing (SRI) to achieve comprehensive Sharia values (kaffah) and sustainability for the case of Indonesia. Proposing screening criteria and forming a sustainable Sharia-SRI portfolio, the study compares its performance with Islamic-screened and conventional portfolios. Using shares from the Indonesian Sharia Stock Index (ISSI) and SRI-Kehati, and analyzing their daily closing prices for ten year period spanning from 2014 to 2023, the Wilcoxon Signed Rank Test reveals that the Sharia-SRI integrated portfolio yields higher returns than ISSI and SRI-Kehati over the long term. These findings suggest that integrating Sharia and SRI can address environmental and human rights issues, attract more investors, achieve kaffah and promote ethical investment practices.
Downloads
Article Details
Issue
Section
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Journal of Islamic Monetary Economics and Finance is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
References
Ab Aziz, M. R., Mat Noor, F., Marzuki, A., Ali Basah, M. Y., Sabri, H., Ramli, N. A., & Shahwan, S. (2022). Research and publication trends in environmental, social and governance (ESG), sustainable and responsible investment (SRI) and Maqasid Shariah framework between 2012-2021. Journal of Information and Knowledge Management (JIKM), 12(1), 1–30.
Abdelsalam, O., Duygun, M., Matallín-Sáez, J. C., & Tortosa-Ausina, E. (2017). Is ethical money sensitive to past returns? The case of portfolio constraints and persistence in Islamic funds. Journal of Financial Services Research, 51, 363–384.
Abdullah, A., & Rao, U. (2022). Making a compelling case for ESG and Islamic funds: An empirical investigation in comparison with conventional funds. Indian Journal of Finance and Banking, 9(1), 230–239.
AitElMekki, O. (2020). Is socially responsible investment outperforming conventional investment or not? A meta-analysis. American Journal of Industrial and Business Management, 10(11), 1760–1784.
Alanyali, M., Moat, H. S., & Preis, T. (2013). Quantifying the relationship between financial news and the stock market. Scientific Reports, 3(1), 3578.
Al-Roubaie, A., & Sarea, A. (2019). Building capacity for green economy: The role of Islamic finance. TAFHIM: IKIM Journal of Islam and the Contemporary World, 12(2), 1–29.
Alotaibi, K. O., Helliar, C., & Tantisantiwong, N. (2022). Competing logics in the Islamic funds industry: A market logic versus a religious logic. Journal of Business Ethics, 175(1), 207–230.
Anwer, Z., Azmi, W., & Mohamad, S. (2023). Shariah screening and corporate governance: The case of constituent stocks of Dow Jones US Indices. International Review of Economics and Finance, 86, 976–1002.
Ayadi, S., & Ghorbel, S. Z. (2018). Relevance of the Mann Whitney Wilcoxon test in the survival analysis of newly established companies in Tunisia (Case of the Sfax region). Journal of Global Entrepreneurship Research, 8(12). https://doi.org/10.1186/s40497-018-0093-7
Azmi, W., Anwer, Z., Mohamad, S., & Shah, M. E. (2019). The substitution hypothesis of agency conflicts: Evidence on Shariah compliant equities. Global Finance Journal, 41, 90–103.
Badía, G., Cortez, M. C., & Ferruz, L. (2020). Socially responsible investing worldwide: Do markets value corporate social responsibility? Corporate Social Responsibility and Environmental Management, 27(6), 2751–2764.
Badía, G., Ferruz, L., & Cortez, M. C. (2021). The performance of social responsible investing from retail investors' perspective: International evidence. International Journal of Finance and Economics, 26(4), 6074–6088.
Beloskar, V. D., & Nageswara Rao, S. V. D. (2024). Screening activity matters: Evidence from ESG portfolio performance from an emerging market. International Journal of Finance & Economics, 29(3), 2593–2619.
Bodhanwala, S., & Bodhanwala, R. (2020). Relationship between sustainable and responsible investing and returns: A global evidence. Social Responsibility Journal, 16(4), 579–594.
Borgniet, T., & Leonardo, I. (2021). Socially responsible investments: Performance analysis between a SRI and a conventional index: FTSE4Good compared to FTSE Index (Master's thesis, Université catholique de Louvain, Louvain-la-Neuve, Belgium).
Burchi, A., & Włodarczyk, B. (2022). ‘Best in class' socially responsible investment. The actual performance evaluation between the US and Europe. Journal of Sustainable Finance and Investment, 12(2), 275–298.
Capelle‐Blancard, G., & Monjon, S. (2014). The performance of socially responsible funds: Does the screening process matter?. European Financial Management, 20(3), 494–520.
Charfeddine, L., Najah, A., & Teulon, F. (2016). Socially responsible investing and Islamic funds: New perspectives for portfolio allocation. Research in International Business and Finance, 36, 351–361.
Chen, L., Zhang, L., Huang, J., Xiao, H., & Zhou, Z. (2021). Social responsibility portfolio optimization incorporating ESG criteria. Journal of Management Science and Engineering, 6(1), 75–85.
Dervi, U. D., Khan, A., Saba, I., Hassan, M. K., & Paltrinieri, A. (2022). Green and socially responsible finance: past, present and future. Managerial Finance, 48(8), 1250–1278.
Dharani, M., Hassan, M. K., & Paltrinieri, A. (2019). Faith-based norms and portfolio performance: Evidence from India. Global Finance Journal, 41, 79–89.
El Ghoul, S., Karoui, A., Patel, S., & Ramani, S. (2023). The green and Brown performances of mutual fund portfolios. Journal of Cleaner Production, 384, 135267.
Elnahas, A., Ismail, G., El‐Khatib, R., & Hassan, M. K. (2021). Islamic labeled firms: Revisiting Dow Jones measure of compliance. Journal of Business Finance & Accounting, 48(5-6), 988-1021.
Erragragui, E., & Revelli, C. (2016). Is it costly to be both shariah compliant and socially responsible? Review of Financial Economics, 31, 64–74.
Erragraguy, E., & Revelli, C. (2015). Should Islamic investors consider SRI criteria in their investment strategies? Finance Research Letters, 14, 11–19.
Ferrat, Y., Daty, F., & Burlacu, R. (2023). Screening: Value enhancing or diminishing?. Business Ethics, the Environment and Responsibility, 32(1), 358–370.
Fu, T., & Li, J. (2023). An empirical analysis of the impact of ESG on financial performance: The moderating role of digital transformation. Frontiers in Environmental Science, 11, 1256052.
Garg, A., Gupta, P. K., & Bhullar, P. S. (2021). Is CSR expenditure relevant to the firms in India? Organizations and Markets in Emerging Economies, 12(1), 178–197.
Ghoul, W., & Karam, P. (2007). MRI and SRI mutual funds: A comparison of Christian, Islamic (morally responsible investing), and socially responsible investing (SRI) mutual funds. The Journal of Investing, 16(2), 96–102.
Gunawan, I., Firdaus, M., Siregar, H., & Siregar, M. E. (2021). What makes Indonesia’s sustainable investment better than shariah and liquid. Jurnal Aplikasi Bisnis dan Manajemen, 7(1), 202–211.
Hanif, M. (2019). Shariah screening process of capital markets: An evaluation of methodologies. Journal of King Abdulaziz University: Islamic Economics, 32(1), 23–42.
Hassan, M. K., Rashid, M., Wei, A. S. T., Adedokun, B. O., & Ramachandran, J. (2019). Islamic business scorecard and the screening of Islamic businesses in a cross-country setting. Thunderbird International Business Review, 61(5), 807–819.
Heese, K. (2005). The development of socially responsible investment in South Africa: Experience and evolution of SRI in global markets. Development Southern Africa, 22(5), 729–739.
Husse, T., & Pippo, F. (2024). Responsible Minus Irresponsible-a determinant of equity risk premia?. Journal of Sustainable Finance & Investment, 14(3), 619–641.
Kramer, M. R., & Pfitzer, M. (2022). The essential link between ESG targets and financial performance. Harvard Business Review, 100(5), 128–137.
Lee, D. D., Humphrey, J. E., Benson, K. L., & Ahn, J. Y. (2010). Socially responsible investment fund performance: The impact of screening intensity. Accounting & Finance, 50(2), 351–370.
Lee, S.-P., & Isa, M. (2023). Environmental, social and governance (ESG) practices and financial performance of Shariah-compliant companies in Malaysia. Journal of Islamic Accounting and Business Research, 14(2), 295–314.
Leite, P., & Cortez, M. C. (2014). Style and performance of international socially responsible funds in Europe. Research in International Business and Finance, 30, 248–267.
Mahenthiran, S., Gjerde, T., & Ansari, J. (2023). Importance of ESG ratings for Shariah-compliant companies listed on Gulf Cooperation Council countries stock exchanges. Available at SSRN 4552058.
Majeed, M. T. (2021). Finance as a source of ecological quality: Islamic ethics of environment and empirical evidence. In M. K. Hassan, M. Saraç, & A. Khan (Eds.), Islamic finance and sustainable development : A sustainable economic framework for muslim and non-muslim countries (pp. 219–263). Springer International Publishing.
Mansor, F., Al Rahahleh, N., & Bhatti, M. I. (2019). New evidence on fund performance in extreme events. International Journal of Managerial Finance, 15(4), 511–532.
Mehmood, K. K., Rasheed, R., & Jaan, J. (2020). How does stakeholders pressure affect organization performance and employee wellbeing? Study of multiple mediating roles. Journal of Business and Social Review in Emerging Economies, 6(1), 55–68.
Mikołajek-Gocejna, M. (2018). The environmental, social and governance aspects of social responsibility indices - A comparative analysis of European SRI indices. Comparative Economic Research. Central and Eastern Europe, 21(3), 25–44.
Msiska, M., Ng, A., & Kimmel, R. K. (2021). Doing well by doing good with the performance of United Nations Global Compact Climate Change Champions. Humanities and Social Sciences Communications, 8(1), 321. https://doi.org/10.1057/s41599-021-00989-2
Mustafida, R., & Fauziah, N. N. (2021). Implementing ESG concept in Sharia stock screening process. Hasanuddin Economics and Business Review, 5(1), 1–7.
Nor, F. M., Shaharuddin, A., Marzuki, A., & Ramli, N. A. (2019). Revised Malaysian Shariah screening: Its impact on Islamic capital market. Research in World Economy, 10(1), 17-30.
Paltrinieri, A., Floreani, J., Kappen, J. A., Mitchell, M. C., & Chawla, K. (2019). Islamic, socially responsible, and conventional market comovements: Evidence from stock indices. Thunderbird International Business Review, 61(5), 719–733.
Pepis, S., & de Jong, P. (2019). Effects of Shariah-compliant business practices on long-term financial performance. Pacific Basin Finance Journal, 53, 254-267.
Picado, M. S. F. (2021). Performance of SRI funds during market crises: Evidence of the US market (Master's dissertation, Universidade do Minho, Portugal).
Pok, W. C. (2012). Analysis of Syariah quantitative screening norms among Malaysia Syariah-compliant stocks. Investment Management and Financial Innovations, 9(2), 69–80.
Qoyum, A., Al Hashfi, R. U., Zusryn, A. S., Kusuma, H., & Qizam, I. (2021). Does an Islamic-SRI portfolio really matter? Empirical application of valuation models in Indonesia. Borsa Istanbul Review, 21(2), 105-124.
Rasid, M. E. S. M., Ibrahim, M. H., & Goud, B. (2021). Islamic–ESG synergies and performance. London, England: RFI Foundation.
Rizaldy, M. R., & Ahmed, H. (2019). Islamic legal methodologies and Shariah screening standards: Application in the Indonesian stock market. Thunderbird International Business Review, 61(5), 793–805.
Rosenblatt, J. D., & Benjamini, Y. (2018). On mixture alternatives and Wilcoxon's signed-rank test. The American Statistician, 72(4), 344–347.
Sairally, B. S. (2015). Integrating environmental, social and governance (ESG) factors in Islamic finance: Towards the realisation of maqāṣid al-sharīʿah. ISRA International Journal of Islamic Finance, 7(2), 145-154.
Schröder, M. (2007). Is there a difference? The performance characteristics of SRI equity indices. Journal of Business Finance & Accounting, 34(1‐2), 331-348.
Sukor, M. E. A., & Abdul Halim, A. (2022). Theory and evidence of the impacts of Shariah debt screening on firm behaviour. Journal of Islamic Accounting and Business Research, 13(8), 1137–1154.
Tabrizi, S. (2022). Performance and risk of shariah-compliant investment and socially responsible investment (Master's dissertation, Universidade de Lisboa, Portugal).
Tanggamani, V., Amran, A., & Ramayah, T. (2020). The virtuous cycle of corporate social responsibility and corporate financial performance: The mediating role of firm reputation. Humanities and Social Sciences Letters, 8(1), 62–77.
Tanin, T. I., Ahmad, A. U. F., & Muneeza, A. (2023). Shariah-compliant equities and Shariah screening: Need for convergence of ethical screening of stocks with Shariah screening. International Journal of Emerging Markets, 18(2), 296–315.
Whelan, T., Atz, U., Van Holt, T., & Clark, C. (2021). ESG and financial performance: Uncovering the relationship by aggregating evidence from 2015–2020. New York, NY: Center for Sustainable Business, Stern School of Business, New York University.
Widyanata, F., & Bashir, A. (2020). The causality between Indonesian Sharia stock index and market capitalization: Evidence from Indonesia. Jurnal Ekonomi dan Studi Pembangunan, 12(1), 45–56.
Widyawati, L. (2020). A systematic literature review of socially responsible investment and environmental social governance metrics. Business Strategy and the Environment, 29(2), 619–637.
Wu, Q., Liu, X., Qin, J., Zhou, L., Mardani, A., & Deveci, M. (2022). An integrated multi-criteria decision-making and multi-objective optimization model for socially responsible portfolio selection. Technological Forecasting and Social Change, 184, 121977.
Yesuf, A. J., & Aassouli, D. (2020). Exploring synergies and performance evaluation between Islamic funds and socially responsible investment (SRIs) in light of the Sustainable Development Goals (SDGs). Heliyon, 6(8), e04562.
Zhang, J., & Chen, X. (2021). Socially responsible investment portfolio construction with a double‐screening mechanism considering machine learning prediction. Discrete Dynamics in Nature and Society, 2021(1), 7390887.