To read this content please select one of the options below:

Optimizing global risk-conscious portfolios: the strategic role of Sharia-compliant and ESG investments

Nawazish Mirza (CERIIM, Excelia Business School, La Rochelle, France)
Cristiana Doina Tudor (Bucharest University of Economic Studies, Bucharest, Romania)
Alexandra Horobet (Bucharest University of Economic Studies, Bucharest, Romania)
Lucian Belascu (Lucian Blaga University of Sibiu, Sibiu, Romania)

Sustainability Accounting, Management and Policy Journal

ISSN: 2040-8021

Article publication date: 9 January 2025

73

Abstract

Purpose

This study aims to explore the strategic integration of Sharia-compliant and environmental, social and governance (ESG)-focused investments within global equity portfolio optimization frameworks, with a particular emphasis on variance minimization and dynamic rebalancing techniques.

Design/methodology/approach

The research uses historical data from Sharia-compliant, ESG-focused and conventional equity exchange-traded funds (ETFs). Advanced mean-variance optimization methodologies via quadratic programming are employed, encompassing static optimization with and without a 50% cap on individual asset weights, dynamic optimization with monthly rebalancing and rolling window optimization.

Findings

Portfolios integrating Sharia-compliant investments frequently outperform those composed solely of conventional equity ETFs. Dynamic optimization with monthly rebalancing achieved the highest Sharpe ratio (1.3708) and demonstrated enhanced portfolio resilience during market turbulence, such as the COVID-19 pandemic. Sharia-compliant investments showed substantial allocations during key periods, with weights reaching up to 100% in the first half of 2020. In contrast, ESG-focused investments exhibited more limited and sporadic allocations, reflecting a more opportunistic role in the portfolio.

Practical implications

The findings reaffirm the critical role of Sharia-compliant investments in well-diversified, risk-conscious portfolios while also providing nuanced insights into the more selective integration of ESG-focused assets. The results offer practical guidance for portfolio managers seeking to integrate ethical and sustainable investment principles within advanced portfolio optimization frameworks, particularly when focusing on minimizing variance and dynamically responding to evolving market conditions.

Social implications

The study contributes to the growing body of literature on ethical and sustainable investments, demonstrating that it is possible to balance ethical considerations with robust financial performance. The research underscores the potential for Sharia-compliant investments to play a significant role in global portfolios, potentially fostering greater financial inclusion and cross-cultural understanding in the investment community.

Originality/value

This research provides novel insights by focusing on Sharia-compliant investments within non-Muslim countries, an area that has been relatively underexplored. It also compares the outcomes of static, dynamic and rolling optimizations, highlighting the dynamic interplay between ethical investment principles and financial performance.

Keywords

Acknowledgements

Funding: This work was funded by the EU’s NextGenerationEU instrument through the National Recovery and Resilience Plan of Romania - Pillar III-C9-I8, managed by the Ministry of Research, Innovation and Digitalization, within the project entitled “Non – Gaussian self – similar processes: Enhancing mathematical tools and financial models for capturing complex market dynamics”, contract no. 760243 /28.12.2023, code CF194/31.07.2024.

Citation

Mirza, N., Tudor, C.D., Horobet, A. and Belascu, L. (2025), "Optimizing global risk-conscious portfolios: the strategic role of Sharia-compliant and ESG investments", Sustainability Accounting, Management and Policy Journal, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/SAMPJ-08-2024-0879

Publisher

:

Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

Related articles