Egypt’s convergent moment: Where Shariah and ESG capital meet

Egypt’s asset management industry is embracing the ESG elements of Shariah compliant investing, as policymakers look to shape a broader ethical capital platform by reviewing governance structures and regulatory treatment.

Rania Abdelfattah, associate professor of finance and financial sector specialist at The British University in Egypt, told IFN Investor that Egypt’s policy discussions are increasingly examining how the two frameworks might align as the country’s financial sector evolves.

“The Financial Regulatory Authority encourages more disclosures and encourages companies to follow ESG practices, but again it is not obligatory.” While larger banks and financial institutions have already begun embedding ESG considerations into their operations, Raina said regulators focus primarily on strengthening disclosure practices.

“There is no strict rule saying companies must follow ESG or must offer Islamic finance products,” she said. “But because the industry is globalized and because Egypt works closely with the MENA region, firms tend to adopt ESG practices and Islamic finance tools to fit into the broader market.”

As such, Egypt’s Islamic finance sector developed through market demand rather than government direction. Financial institutions typically introduce Shariah compliant products when investors request them, creating a bottom-up expansion of the sector.

So, while the conceptual overlap between Shariah and ESG frameworks is attracting growing interest, integration at the portfolio level remains limited, Raina added.

Ahmed Abou El-Saad, head of regional asset management for the Middle East, North Africa and Turkiye at Azimut, said the similarities between the two frameworks are often overstated.

“These are two completely separate topics, even if they have a lot of common items in between,” he said, noting that Islamic funds and banks typically operate under the oversight of Shariah supervisory boards rather than ESG frameworks.

The difference reflects how each system is embedded in practice. Shariah compliance operates through established governance structures, while ESG adoption across the asset management industry remains largely voluntary. “ESG is mainly voluntary and it’s not in the bylaws of the asset owners or asset managers.”

Portfolio construction can also complicate the application of ethical screening. Excluding certain sectors may limit exposure to profitable companies, creating tension between ethical mandates and investment performance.

“They blame us for missing opportunities because we say this is a tobacco company and we cannot buy into it,” he added.

Greater alignment between the two frameworks may ultimately depend on stronger regulatory direction. Without more formal requirements, voluntary ESG adoption may struggle to match the institutional discipline already embedded within Islamic finance structures.

“It needs some sort of enforcement from a higher level,” Ahmed said.