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Is it costly to introduce SRI into Islamic portfolios?

Author

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  • Elias Erragragui

    (Kedge Business School [Talence], CRIISEA - Centre de Recherche sur les Institutions, l'Industrie et les Systèmes Économiques d'Amiens - UR UPJV 3908 - UPJV - Université de Picardie Jules Verne)

Abstract

Could Environmental, Social and Governance (ESG) performance be a criterion for Islamic investment? The development of socially responsible investment (SRI) has challenged the ethical approaches associated with Islamic investment as a means to promote social achievements. Noting similarities with the positive screening approach, we investigate the integration of ESG criteria, into Islamic portfolios using KLD social ratings. This research seeks to determine the financial price of being both Sharī‘ahcompliant and socially responsible. We examine the financial performance of self-composed Islamic portfolios with varying ESG scoring. The results indicate no adverse effect on returns due to the application of Islamic and ESG screens, with a substantially higher performance for positive screening on governance during post subprime crisis' period. Significant outperformance still arises for portfolios with bad records in community and human rights though. Performances are controlled for market sensitivity, investment style, momentum factor and sector exposure.

Suggested Citation

  • Elias Erragragui, 2017. "Is it costly to introduce SRI into Islamic portfolios?," Post-Print hal-03821687, HAL.
    • Handle: RePEc:hal:journl:hal-03821687
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    Cited by:

    1. Rahul Verma & Rajesh Mohnot, 2023. "Relative Impact of the U.S. Energy Market Sentiments on Stocks and ESG Index Returns: Evidence from GCC Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 290-300, March.

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