Aiming to extend the appeal of Shariah compliant equity funds, Schroders has been highlighting the environment-friendly aspects of such underlying investments.
Investment Product Manager Kristin Raassum told IFN Investor: “The difference between Shariah and ESG compliance is minimal. So, when it comes to kind of managing these types of funds, they work very well together.”
Noting a general trend towards a preference for socially responsible investing, especially among investors in Europe, UK-based Kristin added: “They’re aiming for the same goal with some small differences.”
Listening closely to client feedback, Schroders has seen the value in giving more emphasis to environmental aspects while building on its existing Shariah funds to make these more appealing to investors.
“This is based on their belief that companies with a strong ESG performance are often better positioned for long-term success.”
Kristin said this trend had also been recognized by more Islamic asset management companies, which are integrating environmental factors into their investment strategies to attract the rising number of ESG-conscious investors.
Schroders manages the Islamic Global Equity fund launched in 2020, which predominantly invests by tracking the Dow Jones Islamic Market World index. It has close to 200 stocks in its portfolio and Kristin said: “We will build on our existing Shariah fund and include more of the environmental elements.”
In terms of demand, Kristin said Schroders has seen much of it being driven by retail investors and selective institutional investors seeking to lobby for sustainable and responsible business practices.
This trend ties in with increased public awareness in Europe, where ESG regulations aim to propel companies towards considering their impact on the environment and society apart from elevating corporate governance while improving sustainability practices.
Kristin said Schroders will maintain its strategy of sticking to equities, as its track record has shown this focus will pay off in the long run in its aim to deliver optimal risk-returns for its clients, without the constant need to alter the composition of its investment portfolio.
“In order to create a sustainable Shariah compliant fund, we would use the backbone of the fund that we already have, and build on top of that by including environmental aspects. The governance component will be in everything because we focus on governance across all products.”
Together with the ESG expectations, Kristin said investors are also making higher demands on fund managers to perform better.
“We have observed that investors in Shariah space are moving away from passive types of funds into more active funds that have a target to outperform the Shariah index. That is the reason we are focusing on equity investments at this point of time.”
