Following its low-key emergence in the late 1980s, environmental, social and governance (ESG) investing was initially considered a niche investment strategy, a means of satisfying certain investors’ conscience rather than a guaranteed method of generating above-average returns.
How times have changed. The sustained appeal to retail investors of SRI / ESG investing was highlighted recently by data* which proved its continued popularity and underlined the sector’s impressive returns. Between April and July, more than £1.2 billion was invested in ESG funds, equivalent to the sector’s total inflows over the previous five years.
While the momentum behind ethical investing preceded the pandemic, it seems likely that as the coronavirus ebbs from our lives, we’ll witness a more engaged debate focusing on social and ethical awareness which will question and examine how organisations operate and what they produce.
Furthermore, post-pandemic, savers and investors are expected to continue investing in socially responsible areas, primarily because the notion that this style of investing carries some form of performance discount has effectively been jettisoned. ESG is no longer thematic but mainstream.
Indeed, pension trustees are now legally required to develop and publish their policies in respect of how they gauge material financial risks, including ESG-related risks, when making investment decisions. The FCA plans similar requirements for pension providers and asset managers.
Ready to join the socially responsible investment mainstream is a form of investment considered a close cousin to ESG: Halal investing, still largely unknown in the UK despite recent average annual returns of leading Halal funds exceeding 20%. **
Much like their ESG cousins, the funds managed according to Halal principles do not invest in tobacco, alcohol, gambling, arms and munitions, adult entertainment or companies with excessive debt. In addition, Halal funds avoid investments in selected foodstuffs and what, according to Sharia, are deemed usurious institutions. There’s a clear convergence of values between Halal investing and ESG / SRI, an ethical bridge which unites them and provides enormous opportunities for investors, introducers and intermediaries.
Halal investing remains virtually unknown to UK investors, but following the recent launch of a Sharia-complaint workplace pension, SIPP and other saving products, backed by pension experts Options UK and Halal investment specialists Wahed Invest, it adds a fresh dimension to ESG and SRI investing.
British Muslims have traditionally had a very limited choice of Sharia-compliant products. As a consequence, their retirement planning has, in many instances, been neglected.
However, the pension products offered by Options UK, combined the investment expertise of Wahed Invest provide an effective solution for individuals and employers with Muslim staff. Those who may have previously shunned traditional pension schemes can now engage with and benefit from a Sharia-compliant plan, safe in the knowledge that their pension will not compromise the principles of their faith.
Moreover, this unique Halal investment model also incorporates automatic lifestyling, the first of its kind in the UK, effectively locking-in accumulated investment growth by gradually switching into less risky funds as investors approach retirement. The objective is to ensure that pension savings are protected and where they need to be when the beneficiary retires.
The very clear convergence of values between Halal investing and ESG / SRI means that Sharia-compliant funds available under the Options UK and Wahed Invest umbrella offer a fresh range of principled investment opportunities to a range of investors: from those seeking Sharia-compliant products to the burgeoning number of existing ethical investors.
*Data provided by Calastone Fund Flow Index (FFI) August 2020
**Average combined annual return (between 27 October 2019 and 27 October 2020) of HSBC Islamic Global Equity Index fund, Aberdeen Standard Islamic SICAV Islamic Global Equity fund and Threadneedle Gatehouse Sharia Global Equity fund.
About Options UK
Established in 2009, Options UK is part of the STM Group Plc. The company specialises in the provision and administration of UK pension schemes for corporates and individuals. It boasts more than 7,000 Self Invested Personal Pension (SIPP) clients as well as an authorised Master Trust for workplace pensions with over 140,000 members. In addition, Options UK services more than 400 Small Self -Administered Schemes (SSAS).
As at November 2020, Options UK had in excess of £1 billion of pension-related assets under administration (AUM).