Sustainable Investing and Islamic Finance: Evidence from the Organisation of Islamic Cooperation (OIC) Countries

Abstract

Sustainable investing and Islamic finance have been two of the fastest-growing areas of finance. In Islamic finance, equity markets play an important role. In the literature on Islamic equities, there are relatively few studies that have integrated sustainability factors into Islamic finance. In this paper, our objective is to contribute to the line of research on the integration of sustainable investing into Islamic finance. To that end, we first examine the comparative performance of investing in the sustainability indices from those Organization of Islamic Cooperation (OIC) countries that are partners of the Sustainable Stock Exchanges (SSE) initiative. We then conduct a case study of Borsa Istanbul in Turkey, which has the best-performing sustainability index from OIC countries. Overall, our findings reveal the heterogeneity in sustainable investment performance, and suggest the potential of obtaining superior risk-adjusted returns in certain economies from OIC countries. This study draws implication on how sustainable investing can help bridge the gap between Islamic and conventional financial markets.