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Study reveals ESG Shariah funds to experience strong growth

1 March 2022

Leading Islamic Finance professionals expect dramatic growth in the number of investment funds combining ESG and Shariah compliance over the next two years.

Study reveals ESG Shariah funds to experience strong growth

More than a third of leading Islamic Finance professionals expect dramatic growth in the number of investment funds combining ESG and Shariah compliance over the next two years, as revealed by a research conducted among 143 leading Islamic Finance professionals working across sectors including banking, insurance, asset management, asset ownership, private equity, regulation and fintechs by IslamicMarkets.com during February 2022 shows.

The study among professionals working across a wide range of sectors found 36% expect dramatic growth while 49% expect a slight increase in the number of fund launches - but most believe the current Islamic Finance market underserves ESG demand. The research was conducted by Maybank Islamic Berhad, the Islamic banking arm of Maybank Group, and IslamicMarkets.com, a leading platform that provides access to expert knowledge and financial opportunities, to support their upcoming forum entitled ‘Driving Sustainable Impact Through Islamic Finance.’

It found 73% of professionals working for organisations including asset managers, banks, insurers, fintechs and consultancies believe demand for ESG investment strategies is not being met by the Islamic Finance market.

They believe that if investment products were certified as both Shariah and ESG-compliant more non-Muslims than Muslims would buy them given the strong demand for ESG in Europe. Around 72% agree the introduction of a global standard for ESG and Shariah would boost demand.

However, 55% of those questioned believe the launch of a global standard is two years or more away and just 52% expect good progress or even dramatic progress in the next two years on the adoption of a unified global legal and regulatory framework for Islamic Finance to help end the lack of standardisation the industry has faced for decades.

Maybank Islamic Chief Executive Officer, Dato’ Mohamed Rafique Merican said:

Islamic Finance is indeed growing strongly but we believe the growth could be further boosted if it was able to offer Shariah and ESG compliant funds globally. This study is showing that potential demand for such funds would rise from the traditional as well as the non-Muslim investors.

Shakeeb Saqlain, CEO of IslamicMarkets added:

There is widespread agreement that the current Islamic Finance market is not meeting the potential demand for ESG and Shariah-compliant funds even though there is an expectation of a growing number of funds being launched. The issue remains, as it has for decades now, the lack of a global regulatory and legal framework.

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