Two Screening Approaches: Halal vs ESG
Halal screening: Based on Islamic principles (no riba, no haram industries)
ESG screening: Based on environmental, social, and governance factors
ESG Criteria Explained
E (Environmental)
- Carbon emissions and climate impact
- Water usage and pollution
- Renewable energy transition
- Waste management
S (Social)
- Labor practices and worker safety
- Diversity and inclusion
- Community impact
- Supply chain ethics
G (Governance)
- Board independence
- Executive compensation
- Shareholder rights
- Transparency and disclosure
Halal vs ESG Overlap
They overlap significantly:
- ✅ Both exclude weapons manufacturers
- ✅ Both favor environmental responsibility
- ✅ Both screen for governance quality
- ❌ Halal has unique financial screens (riba, debt ratios)
- ❌ ESG doesn't care about religious compliance
Where They Differ
Halal rejects but ESG allows:
- Banks (halal rejects; ESG may allow if governance is strong)
- Alcohol/tobacco (halal rejects; ESG may allow if disclosure is good)
Bottom Line
ESG and halal screening complement each other. A stock that's halal is often (but not always) also good on ESG factors. But halal has stricter financial and religious requirements.