HSBC funds complicit in Genocide?

Some things in the news recently about HSBC and their investments from their islamic funds in certain companies. This is nothing new but its it’s in the news again so its good for people to be aware if they were not aware previously. 

What happened
•⁠ ⁠HSBC's Islamic Global Equity Index Fund owns shares in some companies many people would disagree with.
•⁠ ⁠This isn't just HSBC or just Palantir. Most Islamic index funds (HSBC, iShares etc) hold companies linked to Israel's military, like Microsoft, Alphabet, Amazon and Nvidia
•⁠ ⁠This fund sits inside most UK halal workplace pension options, so many of us own it. This makes it a big issue as often there is no alternative.

Why it happens
•⁠ ⁠These funds are passive. They copy an index; nobody at HSBC hand-picks the stocks
•⁠ ⁠Shariah screens filter out sectors (alcohol, gambling, interest) and check debt levels. They may not really screen for human rights or military use, especially if it's a 2nd degree impact such as a company which produces tyres which are then used by fighter jets.

Some context and considerations
•⁠ ⁠Buying shares on the stock market doesn't typically send money to the company. You buy from another investor
•⁠ ⁠The money in these funds is tiny compared with the size of these companies
•⁠ ⁠Using their products (YouTube, Amazon, your phone, AI tools) sends them revenue directly, arguably more than owning the shares
•⁠ ⁠Big US tech is about 20% of the global market, so removing it creates a very different product
•⁠ ⁠People don't agree where the line is for when to exclude a company, in theory an argument can be made to exclude anything from the 'west’

What we've tried at Nisba
•⁠ ⁠We looked into launching our own fund. Costs ran into the hundreds of thousands, and a small fund means high fees for investors (we dont have that sort of money yet)
•⁠ ⁠We launched the halal screener tool to create a pie on trading 212 without these companies but have run into a few issues and are trying to work on them before we push it out more publicly
•⁠ ⁠We raised some of these concerns directly with HSBC's ETF team in our interview (20 mins in)

What you can do
•⁠ ⁠Write to the fund's Shariah board or to the fund and ask about specific holdings and ask them for a change
•⁠ ⁠If you're thinking of opting out of a workplace pension, know you'd give up employer contributions and tax relief. It's your decision to weigh, but this can be done.
•⁠ ⁠⁠You can move your pension to a SIPP provider and pick your own investments

My opinion...
HSBC is a commercial enterprise, they gravitate towards profit. They are not a muslim aligned organisation and if they want to launch an islamic fund they need experts to help them decide what goes into the funds.

The funds they use are passive, technically HSBC do not choose what goes into the fund, but they choose the index that the fund is based on. The index provider for the fund in question is S&P. 

S&P are the people behind many famous indices, most notably the S&P 500. S&P are a commercial enterprise, they gravitate towards profit. They are not a muslim aligned organisation and if they want to launch an islamic index they need experts to help them decide what is shariah-compliant.

S&P say in their shariah-screening methodology document:
S&P Dow Jones Indices has contracted with Ratings Intelligence Partners (RI) to provide the Shariah screens and filter the stocks based on these screens. RI is a London/Kuwait based consulting company specializing in solutions for the global Islamic investment market. Its team consists of qualified Islamic researchers who work directly with a Shariah Supervisory Board, which is a board of Islamic scholars serving to interpret business issues and recommend actions related to business decisions for the indices.

Ratings Intelligence say on their website:
Ratings Intelligence is a unique partnership of a world-class Shariah Committee, western investment bankers, as well as financial institutions in both the Muslim and the non-Muslim world.

At Ratings Intelligence, our Shariah rules and processes are set after detailed discussions between Dr. Muhammad Ali El-Gari, who is an expert in both Shariah and conventional finance, Dr Nazih Hammad, the foremost academic in the technicalities of Islamic jurisprudence as applied to finance and Dr. Mohammad Amin Ali Qattan who is an expert in Shariah matters.

Our association with the Shariah advisory board scholars goes back two decades.

Ratings Intelligence Shariah board comprises of such scholars having vast financial and Shariah expertise bringing the much required experience to the developing field of Islamic finance.

So it is Muslim scholars who have approved it as shariah-compliant, HSBC is the vehicle provider. Not that HSBC is blameless, but there are layers to be aware of. Ratings Intelligence (RI) could in theory withdraw their shariah-compliant certificate from S&P/HSBC or make HSBC change what is in the fund. I'd be surprised if RI were unaware of the implications of their actions and it may have been in reality an impossible situation they were put in. 

Based on the demand we’re seeing and the conversations we’ve had, I believe products with stronger ethical screening will come to market in time. It’s also worth remembering that wrappers like pensions reduce the tax you pay, and many of us have concerns about how the UK government has acted too.

We hope to be part of the change that will come inshallah.

 Let us know what you think or give us suggestions about what we should be doing.

Jzk,
Ahmad & Adel
Nisba