HSBC Sharia fund invested in firms linked to Israel's military supply chain

HSBC has come under scrutiny after a report said its Islamic Global Equity Index Fund invested more than $130 million in companies linked to Israel's military supply chain. The fund is marketed as Sharia-compliant and is one of the United Kingdom's largest Islamic investment products. The report said the holdings included firms associated with components, technology and equipment used in military applications.

The companies named in the report include Palantir and RTX, which it described as part of the wider supply chain supporting Israel's military. HSBC's fund, which has more than $8bn in assets, is designed to channel savings into global equities screened against Islamic financial principles. HSBC says the fund is overseen by an independent Sharia committee made up of two internationally renowned Islamic scholars to ensure compliance with Islamic principles.

The report said the bank's own Sharia philosophy states that a company should have no significant exposure to non-permissible revenue sources such as selling goods or services related to weapons. That has raised questions about how the fund's screening process was applied in practice. The issue is likely to be closely watched by investors who chose the product on the basis that it would avoid businesses considered forbidden under Islamic law.

The controversy comes against the backdrop of the war in Gaza, which has drawn global condemnation and intensified scrutiny of companies linked to Israel's military operations. The report said more than 74,300 Palestinians have been killed since October 2023, including nearly 1,500 since a ceasefire was agreed last year. It also referred to devastation in Gaza and to wider conflict-related violence in the occupied West Bank and southern Lebanon.

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Islamic finance products are generally expected to follow rules that exclude certain sectors and activities, including weapons-related business. In that context, the report's findings go to the heart of how Sharia-compliant funds are assessed, monitored and marketed. They also raise broader questions about governance, transparency and the role of oversight committees in large cross-border investment products.

HSBC is Europe's second-largest bank and its Islamic fund is presented as offering both investment returns and better outcomes for society as a whole. The report said the fund's philosophy describes its approach as ethical investing that enhances society. That positioning makes the allegations more sensitive, because they suggest a possible gap between the fund's stated principles and its actual holdings.

The report did not say whether HSBC had changed its holdings or whether any investors had raised formal complaints. It also did not provide a response from the bank in the material supplied. What remains unclear is whether the investments were made directly in breach of the fund's screening rules or whether they were permitted under a broader interpretation of the criteria, and whether the bank or its Sharia committee will now review the holdings.

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