SEDCO Capital and Shariah compliant investments
As some unethical practices remain unchecked, there is a greater need to improve ethical behaviour, especially in the financial sector. To shed more light on this issue, Middle East Business News & Magazine’s Editor-in-Chief, Amal Daraghmeh Masri, met with Hasan Al-Jabri, CEO of SEDCO Capital, during the recent summit on Responsible Finance and Investment in Zurich, Switzerland.
Can you tell us a little about SEDCO Capital?
SEDCO Capital is one of the largest asset managers in Saudi Arabia and one of the world’s leading Shariah-compliant investors.
What type of clients you have?
We are an asset manager of choice for investors who seek Shariah-compliant services, ranging from institutional investors to high-net worth individuals. We are also welcoming an increasing number of clients who do not typically invest in Shariah-compliant funds, but are nonetheless attracted to a strong track record of returns and a clear commitment to responsible investing.
SEDCO Capital has recently launched Prudent Ethical Investing (PEI). Can you tell us more about that?
Prudent Ethical Investing is the name we have given to our new and innovative Islamic investment strategy. We realised that investors were seeking sustained returns in a low-growth world, but also sustainable outcomes with an eye on ethics. Shariah-funds combine both criteria and it became clear that Islamic investing and responsible financial investing have significant overlap. These are two models with the same laudable goal. We decided to bridge the two models in order to maximise both our returns and social impact as an asset manager.
How does shariah compliance match ethical, social, and governance (ESG) investing? How are they different?
When we devised our model of Prudent Ethical Investment, we drew on the United Nation’s Principles for Responsible Investment (UNPRI), which were introduced in 2006 by UN Secretary General Kofi Annan. SEDCO Capital was the first Shariah-compliant signatory of the UNPRI and we have always had a strong corporate ethic. From our standpoint, the UNPRI calls upon traditional investors to take an ethical approach that Shariah-compliant investors have always taken. The one advantage of UNPRI is that it outlines the responsibilities of investment with somewhat more detail that basic Shariah-compliance. Of course, there is a fundamental difference in that Shariah-compliance is based on the social responsibility at the heart of Islam. This religious calling is the main motivator for us.
You have issued a report recently on PEI. What can you tell us about it?
As part of our work to adopt Prudent Ethical Investing, SEDCO Capital produced a white paper looking at the performance of responsible investment, Islamic investment and unconstrained portfolios across the US, Europe and Asian equity markets. The paper was authored by Christian Gueckel, our Chief Risk Officer. His excellent research shows that Shariah-compliant portfolios have outperformed unconstrained and responsible investment strategies over the last decade on an absolute return and risk-adjusted basis across all analysed markets.
These findings have given us the confidence to bridge Shariah-compliance with responsible investing into a single investment strategy. The white paper has helped us demonstrate to clients why our investment platform of Shariah-compliant funds should be an option for anyone looking to pursue responsible investment.
Can you give us concrete examples of how you help your clients invest ethically, responsibly, and therefore, compliant with Shariah?
Recently, an asset manager much larger than SEDCO approached us to seek a co-investment in a forestry project, which was presented to SEDCO as being Shariah-compliant. When we responded that we have a new policy of Prudent Ethical Investing that goes beyond simple Shariah-compliance, requiring additional assurances around environmental protection and the treatment of local populations, the potential partner initially baulked. But upon further review by the investment committee, the larger asset manager reconsidered their approach, agreeing with the merit of SEDCO’s PEI strategy, not only for the investment at hand, but as a potential new portfolio-wide requirement. For us, this was a major validation of our commitment. We now see PEI as a way to drive our business forward with new partners and new projects, bringing better outcomes to clients.
How do measure the impact of the work you do with your clients?
Our shift to PEI was all about making it easier for clients to measure the impact of their investments. PEI stresses the importance of due diligence and transparency of investment structures. We want clients to be able to see the underlying assets and to know exactly how their investment generates returns. But importantly, we also seek to measure environmental, social, and governance outcomes. Therefore, the idea of impact becomes holistic. It is not just about achieving returns, but about how we achieve returns and what other socially responsible outcomes we can promote. We feel this approach to the idea of impact is a kind of global reflection of the ideas at the centre of Islamic investing. It is very important to the team at SEDCO Capital that we continue to lead in this space.