Exploring Synergies between Islamic Funds and Socially Responsible Investments: Performance Evaluation in Light of the Sustainable Development Goals (SDGs)

The objective of this thesis is to explore synergies between Islamic investment funds and SRI and also to assess the financial performance of Islamic investment funds and compare it to the SRI, conventional funds, and the market benchmarks in light of SDGs. The study used a time series data of 41 Islamic funds selected from 11 countries distributed in four geographical areas. The performance evaluation was done using the Absolute Performance Evaluation and the Risk-Adjusted Performance Evaluation methods. To measure the absolute performance of the funds we used the Paired mean difference method and for the risk-adjusted performance evaluation, we applied the Sharpe ratio, Treynor's index, and Jensen's Alpha based on CAPM.The results of both tests gave mixed results. Islamic finance funds generally outperformed the SRI in the Americas, Asia Pacific, and the GCC regions. They also showed better performance compared to conventional funds in the GCC and Americas. However, none of the results were statistically significant to conclude that Islamic funds have inferior performance than their counterparts. The volatility (riskiness) test results also indicate that Islamic funds are the most stable funds compared to the other funds and the market benchmark. The performance evaluation among Islamic investment funds across the regions indicates that Islamic funds in the Americas have better absolute performance compared to Islamic funds in the other three regions. The outperformance of Americas Islamic funds against Islamic funds in the Asia Pacific and Europe region were statistically significant.The equivalent, even in some regions better, the performance of Islamic funds with SRI indicates that if Islamic funds integrate SRI principles to maximize its impact, it will not affect the funds' financial performance. Therefore, based on the results, the study suggests the introduction of a new asset class within the Islamic finance industry that will have more impact than the existing Islamic finance products. The new assets will have the characteristics of SRI and Shariah-compliant.