Should Islamic investors consider SRI criteria in their investment strategies?

Can environmental, social and governance (ESG) performance be a criterion for Islamic investment policies? The development of socially responsible investments (SRI) challenges the conservative approach of Islamic investments toward promoting corporate social responsibility. This study therefore tests the potential of integrating positive ESG screening with Islamic portfolios using KLD social ratings, to determine the financial price that shariah compliance and social responsibility entail. Our results reveal no adverse effects on returns due to the application of Islamic and ESG screening; substantially higher performance results from the inclusion of good governance criteria in the post-subprime crisis period.