It is clear from our research that Shariah compliance screening can do much to improve environmental, social and governance (ESG) performance. ESG scores from Refinitiv’s EIKON database of over 5,000 non-financial companies suggest a direct correlation between Shariah compliance and higher ESG scores.
Shariah-compliant companies to which Islamic financial institutions will direct capital have ESG scores that are on average 6% higher than for those excluded by the Shariah screening process. For non-financial companies, the difference rises to 10%. ESG scores for Shariah-compliant companies ranged from 3.0% higher for governance to 7.3% and 7.0%, respectively, for environmental and social issues