Socially Responsible is NOT necessarily Halal

The investment world is becoming more contentious. As a Muslim, a millennial, and a human being I am ecstatic that profit is not the be-all and end-all in the investment world anymore. I remember first getting started in this industry and a bunch of the old school advisors was ripping on socially responsible investing and how it would never beat out conventional investing. Haha, they were wrong.  Socially responsible investing (SRI) is in really high demand and performing well for the most part. That being said, Muslims need to be careful when approaching SRI investments. Although the goal of SRI funds is to be ethical and responsible, not all ethical funds classified in the west are necessarily halal. Further, the standards to determine if a fund is Socially responsible are much less rigid than to determine if something is Halal.

What makes an investment Socially Responsible?

The reality is this is kind of arbitrary. Most SRI funds use a grading system and if the good a company is doing outweighs the bad it would appear it is deemed socially responsible. In halal investing, this is not the case. If a company sells liquor even if they donate to orphanages you can not invest in that company. There is nothing to prevent an SRI fund from investing in interest-based investments. Most SRI funds look to issues of corporate governance, environmental impact, and how they treat workers to determine if they are in fact Socially responsible. All of this is good and better than not caring at all. However, impermissible companies like banks, gambling companies, and insurance companies can be found in some SRI funds. This would make many SRI impermissible for Muslims to invest in.

What makes an investment Halal?

For an investment to be halal it has to follow some specific rules. Firstly, it can not make money from interest. So a halal fund would avoid all fixed-income. Secondly, it can not have impermissible business activity. This means a halal investment can not profit off of things like Alcohol, Gambling, Tobacco, Drugs, Weapons, Interest and more. Halal investment funds would avoid these type of businesses. Finally, there are specific rules surrounding leverage and risk that a halal investment would avoid. All in all, a halal investment must meet these criteria to be halal. There is not a grading system to say the halal aspect of this company outweighs the haram.

What does this mean for you?

Nothing really. Do your best to invest in a halal way. Have Canadian Islamic Wealth or other halal companies invest on your behalf. Just keep in mind that just because it is Socially responsible does not mean it is halal. SRI would be a great option if you are forced to contribute to a company retirement plan and all the choices are haram but you have to make one. In that scenario, I would choose SRI if there are no other options. Otherwise, stick to Halal.