Investments · Sustainable
ESG & Sustainable Investing for International Clients
Sustainable investing encompasses a wide range of approaches — from simple sector exclusions to full impact mandates, and from mainstream ESG integration to Shariah-compliant portfolios. Understanding the distinctions, the data, and the performance evidence is essential to making aligned investment choices that reflect your values without sacrificing returns.
Approach spectrum
Six ESG Investment Approaches Explained
There is no single "ESG investment" — the term covers a wide range of methodologies with very different implications for portfolio construction, performance, and alignment with personal values.
Exclusion Screening
Remove entire sectors from the investment universe — tobacco, weapons, gambling, fossil fuels, adult entertainment. Simple to apply; clear ethical boundaries. Does not actively favour sustainable companies — it simply removes the least acceptable ones.
SFDR: Typically Article 8
ESG Integration
ESG data is incorporated into investment analysis alongside financial data. Companies with higher ESG scores are preferred; those with poor governance or environmental risk receive lower weightings or are excluded at threshold. No blanket sector exclusions.
SFDR: Article 8 (most) / Article 9 (highest standards)
Thematic ESG
Investing in specific ESG themes: clean energy, water, circular economy, sustainable agriculture, low-carbon transition. Higher concentration in the chosen theme; stronger alignment with specific environmental goals.
SFDR: Article 8 or 9 depending on mandate
Impact Investing
Targets measurable positive social or environmental outcomes alongside financial returns. Common in private markets — microfinance, affordable housing, clean energy in emerging markets. Outcome measurement is integral to the investment mandate.
SFDR: Article 9 (strong impact mandate)
Active Ownership / Stewardship
Rather than excluding poor ESG performers, the fund actively engages with company management and votes at AGMs to improve ESG practices. Preferred by large institutional managers who believe change from within is more effective than divestment.
SFDR: Varies — Article 8 most common
Shariah-Compliant
Governed by Islamic finance principles. Excludes alcohol, pork, tobacco, gambling, conventional finance. Requires halal certification. Overlap with ESG on many exclusions; distinct on financial sector and interest-bearing instruments.
SFDR: Article 8 typically; some Article 9
Data & ratings
ESG Rating Agencies: Why Ratings Differ
One of the most counterintuitive facts in ESG investing is that the major rating agencies frequently disagree significantly on the ESG rating of the same company. Understanding why is important for evaluating any ESG fund.
MSCI ESG Ratings
Widely used agency rating 8,500+ companies on AAA to CCC scale. Methodology focuses on material ESG risks within each industry. Used by many institutional index providers including the MSCI ESG Leaders Index series.
Sustainalytics
Owned by Morningstar. Risk-based framework assessing the degree to which a company's value is at risk from ESG factors. Score expressed as "ESG Risk Rating" — lower is better. Used extensively by UCITS fund managers.
ISS ESG
Part of Institutional Shareholder Services, primarily known for proxy voting advisory. ISS ESG provides ratings focused on governance quality and responsible investment criteria.
Why the Same Company Can Score A+ at One Agency and B- at Another
Academic research (notably Berg, Kölbel & Rigobon, 2020) found that ESG rating agency divergence stems from three sources: different scope (which ESG attributes are included), different weights (how important each attribute is), and different measurement (how the same attribute is quantified). A company may be rated highly on governance by one agency while being penalised on environmental data by another — producing very different overall scores.
This divergence means that two funds both labelled "ESG" can have materially different underlying portfolios. When selecting ESG funds, look at the underlying portfolio composition, not just the ESG label.
Faith-based investing
Shariah-Compliant Portfolios for Muslim Investors
Core Shariah Prohibitions
Islamic finance prohibits investment in companies with significant exposure to: alcohol production or distribution; pork and related products; conventional banking and insurance (due to riba — interest); gambling; weapons and defence; pornography and adult entertainment; tobacco.
In addition, Shariah screens typically impose financial ratio limits — for example, excluding companies where total debt exceeds 33% of total assets, or where interest income exceeds a defined threshold of revenue. Companies that pass Shariah screens are certified by a Shariah supervisory board.
Overlap with ESG & Investment Performance
There is significant overlap between Shariah exclusions and common ESG exclusion screens — alcohol, tobacco, gambling, and weapons are excluded by both frameworks. The key differences are in the financial sector (Shariah excludes most conventional banks; ESG typically does not) and in the strict debt ratio limits.
Shariah-compliant equity funds have historically shown strong performance relative to conventional indices, partly because their exclusion of highly leveraged financial sector companies reduced drawdowns in the 2008-2009 financial crisis. As of 2026, UCITS Shariah-compliant global equity funds are available from HSBC Amanah, Saturna Capital (Amana Funds), and Amundi, among others.
Frequently Asked Questions
What is the difference between ESG, SRI, and impact investing?
ESG (Environmental, Social, Governance) investing integrates non-financial data into investment analysis — assessing how companies manage climate risk, labour practices, and board governance. SRI (Socially Responsible Investing) is typically exclusion-based: removing sectors such as tobacco, weapons, gambling, or fossil fuels from the investment universe. Impact investing goes further — seeking to generate measurable positive social or environmental outcomes alongside financial returns, often in private markets or emerging economies. The three approaches can overlap: a fund may exclude certain sectors (SRI), integrate ESG analysis, and target specific SDG outcomes (impact) simultaneously.
Do ESG funds perform as well as conventional funds?
The long-term financial performance of ESG funds versus conventional funds remains debated. During 2018-2021, ESG funds outperformed — partly because they were underweight in energy stocks (which lagged) and overweight in technology. In 2022-2023, the energy price surge caused many ESG funds to underperform as they avoided fossil fuel companies. Over a full market cycle, the evidence for a systematic ESG return premium is mixed. What is clearer is that ESG integration can reduce specific downside risks — governance failures, stranded asset risk from carbon regulation — and that investor preference for sustainable products has grown significantly, potentially providing a structural tailwind to ESG-rated assets over time.
What is greenwashing and how do I avoid it?
Greenwashing is the practice of overstating a fund's or company's environmental or social credentials — marketing it as "sustainable" or "responsible" when the actual ESG integration is superficial. The EU's Sustainable Finance Disclosure Regulation (SFDR) classifies funds into Article 6 (no ESG claims), Article 8 ("light green" — promotes environmental/social characteristics), and Article 9 ("dark green" — sustainable investment objective). Article 9 funds face the highest disclosure requirements. Scrutinise the underlying portfolio, not just fund names and marketing materials — a "sustainable global equity fund" may still hold oil majors and arms manufacturers depending on how ESG is defined in the mandate.
How does Shariah-compliant investing differ from ESG investing?
Shariah-compliant investing is governed by Islamic finance principles, excluding businesses involved in alcohol, pork, tobacco, gambling, weapons, and conventional financial services (due to the prohibition on riba — interest). Companies with excessive debt ratios are also excluded. ESG investing is a separate framework with different criteria, though there is meaningful overlap — many ESG exclusions (tobacco, weapons, gambling) align with Shariah prohibitions. The key differences are that Shariah screens are religiously defined and non-negotiable, whereas ESG screens are commercially defined and vary significantly between fund managers. For Muslim investors in the UAE, Malaysia, and Indonesia, Shariah-compliant UCITS funds are increasingly available from providers including HSBC Amanah, Saturna Capital, and Amundi.
Build a sustainable or values-aligned portfolio
Whether you want a simple ESG overlay on a conventional portfolio, a dedicated impact allocation, or a fully Shariah-compliant investment programme, we work with leading UCITS managers and can structure access across currencies and tax jurisdictions for international clients.
ESG fund performance data is relatively short-dated; past performance is not a reliable indicator of future results. Investment values can fall as well as rise. ESG and Shariah compliance criteria vary between providers. Independent advice should be sought. Rules and regulations change; always check current eligibility in your jurisdiction.
Build a sustainable or values-aligned portfolio
From ESG integration to Shariah-compliant mandates, we help internationally mobile investors align their portfolio with their values without sacrificing returns. Get in touch to discuss your approach.