Saudi Arabia's Sedco Capital said on Thursday it has launched an investment strategy combining environment-conscious and sharia-compliant principles, as Islamic financial firms gradually embrace socially responsible investing. The move by Jeddah-based Sedco, an Islamic firm managing $1.8 billion worth of Luxembourg-listed funds, could help develop green investing in the Middle East and make Islamic finance appeal to a wider client base.
The two areas of investment share several characteristics, such as excluding investment in tobacco, alcohol and gambling. Green finance is increasingly important for Islamic firms seeking to differentiate themselves from peers, the Bahrain-based General Council for Islamic Banks and Financial Institutions said in a December report. Sedco, in a statement on Thursday, said its new strategy, dubbed Prudent Ethical Investing, would focus on due diligence and transparency around investment structures, while integrating environmental, social and governance (ESG) criteria.
"We want to expand our relationships globally and one of the most important elements is the awareness of responsible investing," Chief Executive Officer Hasan Aljabri said in an interview ahead of the announcement. "For our Luxembourg funds we see some clients which are conventional gradually trickling in," he said, referring to investors who do not traditionally put money into Islamic funds.
The firm launched two ESG funds in 2012 and has published research which it said showed how a combined investment approach can outperform conventional funds. According to its research, such a strategy can lead to investments with lower financial leverage and better cash conversion qualities, adding a prudential element to those portfolios.
Islamic fund managers have predominantly followed passive filters that exclude prohibited sectors, but ESG can encourage them to take a more active approach. "We are a lot more focused on energy efficiency, water preservation and management, and we are also looking into social factors like labour relations," Aljabri said. In 2014, Sedco became the first Saudi asset manager and first fully sharia-compliant asset manager to become a signatory of the United Nations Principles of Responsible Investing.
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