IT is evident that since the fourth quarter of the last century, there has been an increase in awareness among investors, both international and domestic, to be more selective and prudent in the formation of their investment portfolios.
Besides the expected profits, this breed of investors is particularly concerned about the business activities of the firms they intend to invest in.
The main concern is the impact of the investment on fellow mankind and the environment. A less prudent investment may contribute towards the destruction of the environment.
For example, in their eagerness to churn out profits, there are businesses which cause, on a large scale, air and water pollution. The preference for investing in a wise and considerate manner is popularly known as ethical investment. The term ethical investment may bring different interpretations to different people.
Investors are concerned for a variety of reasons – from health to environmental awareness and from cultural
practices to the religious point of view. In western economies, a number of funds (e.g. the Friends and Provident Stewardship Fund in Britain) has been established to cater to the needs of the ethical investors.
These funds have concrete policies where their “dos” and “don’ts” are outlined and presented clearly with regards to their investment activities. In a sense, ethical investors in Malaysia are quite fortunate. Their ethical concern is shared by the relevant authorities such as the Securities Commission, which is committed in making the Malaysian capital market acceptable to Muslim investors.This organisation takes pains to dichotomise all counters listed on the Kuala Lumpur Stock Exchange into two areas – syariah compliance and syariah non-compliance. The list of syariah compliance counters are revised twice a year, in April and October.Based on this list, daily newspapers mark the shares in their stock market report to differentiate between the approved and non-approved shares. This permits investors to make their ethical choices easily.
Recent developments in the Malaysian capital market also indicate that some trust fund managers have begun to specialise in providing syariah-approved investment alternatives. What does Islam say about ethical investment? For Muslim investors, their investment decisions are mainly guided by two main areas.These are the prohibition of usury (riba’) and the prohibition of pork-related products and alcoholic beverages. Prohibition against riba’is clearly established in the Quran and Hadith. For example, Allah says to this effect: “For those who devour usury will not stand except as stands one whom the Evil one by his touch hath driven to madness. That is because they say: Trade is like usury, but Allah hath permitted trade and forbidden usury.” (al-Baqarah:275).
In practice, Muslim investors have the tendency to limit their interpretation of investment ethics to the above-mentioned criteria. Therefore, are we saying that, for example, “green” investment is not Islamic? No, there is nothing unIslamic about these investment preferences.There is evidence from the Quran that prohibits mankind from polluting the environment (air and water) or unnecessarily destroying the forests. Allah does say that: “Seek instead, by means of what God has granted (the good of) the life to come, without forgetting, withal, thine own (rightful) share in this world, and do good (unto others) as God has done good unto thee; and seek not to spread corruption on earth: for, verily, God does not love the spreaders of corruption’’ (al-Qasas:77).
Another question here is, should investors totally ignore or invest in some of the non-ethical counters? A quick response might suggest that we should totally ignore such counters. As a consequence, nothing will improve and the non-ethical counters will continue to exist as they are. It is believed that a fight for a change is more effective from inside, not from the outside.
Therefore, if we want to change for the better, we should continue to invest in some of these companies. As shareholders, the investors will have opportunities to voice their opinions during the annual general meetings.
A positive outlook is that there is an upward trend in the economic well-being of Muslims in this country and Muslims represent slightly more than half of the Malaysian population.
Furthermore, this is a “back-to-basic era” where people are seeking religious truths to fill the spiritual gap in their lives. This is a universal phenomenon and, as such, Muslims in this country are experiencing a similar spiritual search.
The increasing religious awareness among Muslims leads to them being more prudent in their conduct, and this includes their investment activities.
It is believed a similar phenomenon is being experienced by investors of other faiths. Put together, these groups of ethically conscious people, Muslims and non-Muslims, could form a relatively large group of potential investors
with substantially large funds for investment. However, in another light, certain companies might have reasons for failing to observe ethical standards in conducting business.
Their reluctance are mainly centred on the argument that observing ethical standards will increase costs and, therefore, will reduce profitability. But, it is evident that in the presence of advanced technology, companies can be creative and innovative enough to improve the quality of their products without having to pass the extra cost to consumers.
For example, while electrical goods are getting to be more user-friendly and environment-friendly, they are heaper too. It must be said that, as for Muslims, ethical investment does not stop only at the selection of the syariah compliance instruments.The acquisition of wealth is also accompanied by an additional responsibility. The shares for the needy must not be forgotten.
Muslims are required to pay tithe (zakat) from their wealth upon satisfying all conditions. Allah says to the effect that: “(Hence, O Prophet,) accept that (part) of their possessions which is offered for the sake of God, so that thou may cleanse them thereby and cause them to grow in purity, and pray for them: behold, thy prayer will be (a source of) comfort to them – for God is all-hearing, all-knowing.” (at-Taubah: 103).