ESG Integration in Islamic Investments

Integrating the principles of sustainable investing within the framework of Islamic finance has become a significant area of interest for investors who aim to align their portfolios with both ethical and financial goals. In this report, we examine the financial performance of MSCI ESG Ratings within global Islamic equity indexes over their 11+ year history. Utilizing a standard quintile analysis on MSCI ESG Ratings scores — controlled for sectors, regions and company size — we found that companies with higher MSCI ESG Ratings outperformed their lower-rated counterparts in the MSCI ACWI Islamic M-Series Index over the study period.

Firms with highest MSCI ESG Ratings in MSCI ACWI Islamic M-Series Index outperformed lower-rated peers

Data from Dec. 31, 2012, to June 28, 2024. Quintiles are created every month based on adjusted scores: scores are first z-scored by sector and region (North America, Europe, Pacific and emerging-markets sub-indexes of the MSCI ACWI Islamic M-Series Index) and then size adjusted. The next month’s performance (in USD return) of the quintiles is calculated. The graph shows the cumulative difference between the top and bottom quintiles’ performance. The data period is the longest available for this analysis.