RELIGION AND EARNINGS MANAGEMENT - Some ... - Unitec

Table 1 The Differences between SRI and Islamic Investment
Objectives The primary objective of SRI is to
maximize the financial return
alongside with the non-financial
return
Moral duty Carry moral duty as it is support the
sustainable development activities
for the betterment of the whole
society and future generation
Diversification of
investment
portfolio
Clear definition of
action limit and
standard criteria
SRI Islamic investment
Lack of diversification as the SRI
exclude unethical sector through the
application of negative approach
No. A universally recognized
definition of social responsibility
does not exist
Faith-based rules No Yes
Supervisory
committee
Management
strategy
Not necessary; where present, it is
called Ethical committee
i. Sector exclusion Yes. Sectors not compliant with
social, ethical and environmental
criteria are excluded
ii. Best-in-class Yes. Firms operating in sectors
generally forbidden can be included
if they exhibit a commitment to
socially responsible principles
Restriction on
investment
instrument
The primary objective of Islamic
investment is to seek the pleasure of
Allah and fulfill the society needs. The
secondary objective is to gain profit
within the ambit of Shariah
Carry moral duty as it is likely to
maintain the economic growth via the
establishment of social justice and
equal distribution of wealth and power
for the benefit of the whole society
Lack of diversification as the Islamic
investment exclude prohibited sector or
activities which conflict which Shariah
Yes. The guideline is according to
Shariah as prescribed in the Al-Quran
and Hadith
Yes, Shariah Supervisory committee or
board
Yes. Sectors that primary activities
conflict with Shariah are excluded
No
No Yes. Some financial instrument such as
preferred stock and interest-bearing
securities are forbidden as it guaranteed
fixed financial return to the investors
that might violate the principle of social
justice.
Source: Adapted from Forte and Miglietta (2007)
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