Shariah screening is split into two: Qualitative sector screening (for permissible and nonpermissible sector) and financial screening (to exclude companies with high leverage, high excessive underutilized cash, and high receivables). These Shariah companies are financially stable and well-managed.
Similarly, screening for ethical investment is established through negative screening, positive screening, best of sector, and social responsibility outlay.
Both methodologies share an ethical investment philosophy, which is a value-based investing approach to align investors’ portfolio holdings with their beliefs.
The additional Shariah financial ratio that results in a second level of performance filter compared to an ethical investing screening process will benefit the investors by bringing them to the next level of potentially getting better sustainable superior performance.
The ultimate goal of both Islamic and ethical investing is the maximization of social benefits (through value enhancement) as opposed to wealth maximization.
Investing ethically or the Shariah way does not mean one has to sacrifice investment performance. In an uncertain investment market, both have shown better performance than nonethical and non-Shariah.
Investing in both ethical and Shariah will be the most optimal reaction to solving today’s world challenges—such as climate change and excessive greed and economic capitalism.
For those investors who already invest in ethical funds, Shariah investing ...
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