Principal launches ESG-focused Shariah-compliant investment fund

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  • Fund aims for companies that embrace sustainability values in business
  • Target fund is a qualified Sustainable and Responsible Investment fund
According to Munirah Khairuddin, CEO and country head of Principal Malaysia, the fund targets to outperform the benchmark MSCI ACWI Islamic Index.

Principal Malaysia has introduced the Principal Islamic Global Responsible Equity Fund, a Shariah-compliant investment fund that provides investors with an opportunity to invest across a diversified portfolio of equities while considering sustainability criteria.

The fund feeds into the Islamic Global Responsible Equity Fund, the target fund managed by Principal Islamic. It is positioned towards investors who seek exposure to Shariah-compliant global equities with an investment horizon of at least five years and is a qualified Sustainable and Responsible Investment fund in Malaysia.

It is of interest to note that the market for Islamic funds has grown by 300% over a decade globally, reaching close to US$200 billion in assets under management in 2021. While it is still small in comparison to the trillions managed by conventional funds, the increasing focus on Environment, Social and Governance (ESG) is widely believed to be beneficial for Shariah-compliant funds given the natural fit for responsible investing.

The new Principal fund aims to invest in companies that are not only fundamentally attractive but also embrace strong sustainability values in their businesses by demonstrating either good or improving ESG practices.  The fund targets to outperform the benchmark MSCI ACWI Islamic Index.

“At Principal, we seek to offer investors a choice of innovative solutions aiming to build, protect, and advance their financial well-being, while also achieving favourable outcomes for people and the environment. With increasing interest in funds focused on sustainability and which can deliver both positive impact and returns, we hope this launch will allow more investors in Malaysia to invest sustainably and responsibly”, said Munirah Khairuddin, chief executive officer and country head of Principal Malaysia.

On the ESG front, Principal says that it screens the portfolio’s exposure to carbon-intensive companies (carbon risk level) and aims for an aggregate carbon risk level 15% lower than the benchmark index.

“With growing consciousness around sustainability issues, we believe that offering investments with ESG values may translate to outperformance over the medium to long term,” said Patrick Chang, chief investment officer, Malaysia and CIO Equities, ASEAN. “The investment team considers companies demonstrating sound principles of sustainability in their governance structures and regularly engages them to encourage continued improvement for successful long-term performance.”

Disclosure: Hardesh Singh, Editor of Sustainability Matters is a registered consultant with Principal Asset Management Bhd.