Evaluating the Performance of Islamic Investment Funds: A Comparison with Socially Responsible Investment Funds, Conventional Funds, and Market Benchmarks in Light of the Sustainable Development Goals (SDGs)

This study aims to evaluate risk and return characteristics of Islamic funds in comparison with SRI and investigate the possible synergies between the two in the light of the SDGs. The study also compares the financial performance of Islamic funds with conventional funds and Islamic market benchmarks. The analysis was carried out using the absolute and risk-adjusted-performance evaluation techniques based on data collected from 11 countries distributed in four geographical regions. The results demonstrate that there was no statistically significant difference between the returns of Islamic funds and SRI funds in all regions. Islamic funds were also the least risk-sensitive instruments compared to their counterparts in most of the regions. The results indicate that embedding ESG/SDGs considerations into Islamic funds investment decisions do not adversely affect their returns. Rather, it enhances their positive impact and contribution to mitigate the SDGs financing gaps. The analysis further demonstrates the possible synergies between the two categories of funds in line with Shariah principles. Hence, the study highlights the importance of developing a new asset class, “Shariah-compliant SRIs”, that is both Shariah-compliant and integrates ESG/SDGs considerations. The new asset class will target a wider investor base including both Shariah and impact investors, which will support the achievement of the SDG agenda.