A guy left a comment on my blog recently that he preached on ethical investment and has done it for years and feel that Islamic investment is ethical investment. However, I did not approve the publishing of his comment in view of the fact that he is trying to advertise his consultancy business, which I think is not entirely appropriate - that my blog should not be used as a marketing tool.
Let’s look at what it means by “ethical investment” - Ethical or socially responsible investment (SRI) aims to integrate personal values with investment decisions. Many investors want their investment holdings to reflect their values, and support companies that behave in ways they consider appropriate or responsible. Ethical Investment and SRI is part of an investment movement which no longer accepts that the financial bottom line is the only criterion for measuring investment success. This movement, promoting a ‘triple bottom line’, believes that environmental, social and economic consequences should be considered as parts of the investment assessment process.
Investing ethically means ‘knowing what your money is doing’
Here’s a look at “ethical investment” tips from a conventional perspective :
1) Consider what you mean by “ethical”
There are scores of different ethical funds to choose from, all with slightly different criteria. Many screen out businesses involved in alcohol, tobacco, pornography, nuclear energy and animal testing. But are you against animal testing for medical purposes, or only for cosmetics? Or if you're an environmentalist do you think nuclear energy is the work of the devil, or a practical solution to global warming? And why snub alcohol when you like a tipple yourself? These are all tricky questions that must be answered before you can sensibly choose an investment fund to match your profile.
2) Do your research
Some of these funds simply aim to filter out the baddies, while others actively invest in companies working in socially responsible areas such as pollution control, clean fuels and healthcare services.
3) Consider your attitude on risk
Some investment principles are exactly the same whether you invest in solar panels or surface-to-air missiles. First, determine your attitude to risk. If you're a low-risk investor, for example, you might want to avoid stocks and shares altogether, while only aggressive investors should sink their money into high-risk companies such as renewable energy start-ups.
4) Prepare for smaller returns
Ethical funds are hampered when competing against those funds that are free to invest in any company, and some have struggled in the past year. Most ethical managers shun oil, mining and commodities, which have been the hottest sectors lately as oil and commodity prices won't rise forever, and ethical funds should prosper again. Solar panel and wind power manufacturers have done well recently.
5) Performance does matter
Strike a balance between principles and profit. Don't just examine where the fund invests - check how it has performed (but remember, past performance is no guarantee of future returns).
Based on the 5 points above, do you think that Islamic investment = ethical investment? Now let us compare the so called “ethical investment” with Islamic investment.
Islamic investments are a unique form of socially responsible investments because Islam makes no division between the spiritual and the secular.
The establishment of an Islamic investment policy, be it for the institutional or individual investor, starts with the Sharia Board, a group of Islamic scholars (jurists) that vests investment products for compliance with Islamic Law and conducts ongoing due diligence of them. Sources for interpretation follow a hierarchy of authority: the Quran, believed by Muslims to be the words of Allah verbatim as revealed to his prophet Muhammad in the seventh century; the Sunnah which are rules from the prophet's sayings (Hadiths) and actions; Qiyas which are scholarly legal deductions; and Ijma, the consensus of scholars on a particular issue.
Many view that ethical investment overlaps Islamic investment as there are many similarities between them such as the prohibition of investment in business activities that are harmful to human being, and that both forms of investment required screening processes in order to determine the ethically acceptable form of investment. Nevertheless, there are some distinct differences. This is because Islamic investment is much more than merely investing activities as it is deeply rooted in the teaching of the Qur'an. Hence, principally the two types of investment are different.
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