"The key objective of Shariah investing is the promotion of wellbeing-for mankind, the economy and the planet," says Gregory Seow, Head of Global Banking Singapore and Global Head of the Financial Institutions Group at Maybank. "At the end of the day, all members of society would ideally achieve equitable growth. Investors in this sphere look for companies that promote benefits to society, avoid making unjust gains, share risks and rewards equitably and are trustworthy, faithful and transparent."

As with sustainable finance, Shariah-compliant investment considers the impact that a company has on the environment and society - considerations that have become more pressing with the growing green economy.

Growing investor opportunities

In keeping with its mission to promote sustainable financing, Maybank Singapore has been expanding its expertise not just in sustainability, but also in Shariah financing. In March last year, the bank facilitated S$250mn (US$180mn) in Islamic green financing for Royal Group, the hotel owner and developer, to fund the world's first green-financed and Shariah-compliant hotel. Royal Group pledged to embed both Shariah and sustainability concepts in the design and operations ofits Raffles Sentosa Resort & Spa Singapore, which is set to open on Sentosa island next year.

And Maybank has not stopped there. In October, its asset-management arm, Maybank Asset Management Singapore, launched the city-state's first Shariah-compliant balanced fund, which is called the Maybank Asian Growth and Income-Islamic Fund (MAGI). The fund provides investors with a unique mix of securities across Shariah-compliant Asian stocks, global Sukuks and gold ETFs, using quantitative tools to determine asset allocation while also drawing on its experienced team of fund managers.

Shariah mutual funds have seen growing interest in South-East Asia, with assets under management (AUM) recording over 12 percent compound annual growth between 2016 and 2020. The segment's market share has surpassed one-fifth of total mutual fund AUM in the region, according to Cerulli Associates, the finance industry insights provider.

Despite a tendency to source funds from Muslim-majority countries, Shariah-compliant investments are not restricted by geography. The DJI Islamic index, for instance, has two-thirds of its exposure in the US, with the rest being shared among countries that include Japan, China and Switzerland. The performance has been resilient. According to Bloomberg, up to December 2021 the Global Islamic Equity Index had outperformed the Global Equity Index by 60 and 43 percent over 10 and five-year periods, respectively.

Clearly, Shariah-compliant funds hold appeal for a diverse audience of values-driven investors. In fact, given the lack of a standardised approach to ESG principles, with various guidelines promoting different interpretations, these funds arguably offer the most consistent and transparent framework to ensure adherence to values-based investing.

Expanding issuers' access to capital

There is an urgent need to raise capital to fund development projects that have sustainability at their core. During the 2020s, it is estimated that between U$5tn and U$7tn will be required per annum to achieve the UN's Sustainable Development Goals (SDGs), with RM45bn (US$10.7bn) required in Malaysia during the first five years of the decade alone. Shariah principles and the UN's SDGs have close alignment, so issuers that follow the former allow themselves expanded access to finance from these faith-driven pools of capital.

Some jurisdictions, in fact, have consciously implemented strategies to align Shariah financing with ESG and green values. In Malaysia in 2019, the Securities Commission released its Sustainable and Responsible Investment (SRI) roadmap for the country's capital markets, aimed at establishing itself as an SRI hub with Shariah investing central to its vision. To this end, it has benchmarked its SRI Sukuk Framework for Islamic bonds against the Green Bond Principles issued by the International Capital Markets Association and Social Impact Bonds issued in the UK, combining green, sustainability and social principles.

Financial institutions have a key role to play in the pursuit of these sustainable financing goals, says Maybank's Seow.

"It is crucial for banks to lead the change with their financial resources and expertise. Investors can make an impact with their own financial decisions as well," he says. "Companies which align with ESG principles are able to attract both institutional investors and financiers to make a sustainable impact. Therefore it is important for the transformation to take place across the entire business value chain."

Maybank has been offering Islamic banking products and services in Singapore since 2005 and holds the top position as the preferred Islamic financial institution. To find out more about our Shariah-compliant products and services, click here.

This content has been produced by Maybank in collaboration with the Commercial Department of The Financial Times.