Indexing Strategies

Conference

Islamic Sustainability

Anthony Yeung

Regional Director, Asia

November 27-28, 2007

Islamic Finance & Ethics = Common Shared

Values� Fairness?

-Merger of Faith & Finance +++

-Prohibitions oriented Industry

-Social-Ethical Movement

-Economic Development & Higher Incomes ����

+Secularization or Social Conscious?

-Greening of Islamic Finance

Presentation Overview

-Islamic Screens

-Ethical to Sustainable

-DJIM Sustainability Index

-Conclusion

Islamic Screens

-Negative Covenants

-Prohibitions Oriented Industry

-Negative screens

+Primary Business

+Financial Ratios

-Dow Jones Islamic Market indexes

-AAOIFI

Islamic v. SRI Screening

Exclusions

> Tolerance Parameters

• Impermissible income

• Community benefits

> Primary Business

• Sin sectors

> Financial Ratios

> Reviews

> Scholars

> Purification

• Dividends

> Turnover

• Financial Screen

Inclusions> Economic sectors

• HCR, TECH,

> Stakeholders• Employee, Vendors

> Primary Business• Env, Labor, BoD, Diversity

> Revenue Donation> Bylaws/Prospectus> Turnover

• Mgmt,policies, acts

> Advisory Boards

IF: Beyond Ethical to Sustainable

-Plus Positive Screens

-Bridge of Commonality Language

-Path towards Governance

-Resulting in PR/Mkting Benefits

-Boycotts and ethical

motivation

-Exclusion of industry groups

-Focus on a narrow selection

of social and

-Environmental crietria

EthicalInvestments

Sustainability Investments

-Adding shareholder value

-Future-driven

-Best of class and

industry-specific

-Integrating economic,

environmental and

social criteria

Market Developments (I)From Ethical to Sustainability Investments...

%

Total IndustryCriteria

GeneralCriteria

SocialDimension

EnvironmentalDimension

EconomicDimension

50%33%

20%

100%

50%

33%

33%

DJ Sustainability World Index –

Criteria

Average sustainability scores for selected criteria

DJSI members and non-members

0 10 20 30 40 50 60 70 80 90 100

Corporate Governance

Codes of Conduct / Compliance /

Anti-Corruption & Bribery

Risk & Crisis Management

Eco-Efficiency

Labor Practice Indicators

Human Capital Development

Sustainability and Project Finance

(Banks)

Protection of Biodiversity (Oil &

Gas)

Healthy Living (Food)

Access to Drugs (Drugs)

DJSI Members Non-Members

DJ Sustainability World Index –

Scores

DJ Islamic Market Sustainability Index – Construction

Dow Jones Global Index

Dow Jones Sustainability World Index

(309 components)

Dow Jones Islamic Market World Index

(2418 components)

Dow Jones Islamic Market Sustainability Index(125 components)

Overlap

Top 5 Holdings (Aug ’07)

.63BP PLC1.29P&G3.25Total

.66Microsoft1.39BP PLC3.57Vodaphone

.67AT&T1.45Microsoft3.66Cisco

1.1GE1.49AT&T4.08P&G

1.35%ExxonMbl2.99%ExxonMbl4.39%BP PLC

WeightDJWI

CompWeightDJIM

CompWeightDJIM

Sustain Comp

Sector Weighting

DJW Sector Weighting

10.14%

7.79%

13.58%

10.71%

7.73%8.87%

4.74%

4.64%

22.91%

8.88%

DJIM Sustain Sector Weighting

17.23%

13.93%

9.52%

10.86%

17.80%

3.36%

4.30%

4.55%

0.00%

18.45% Oil & Gas

Basic Materials

Industrials

Consumer Goods

Health Care

Consumer Services

Telecommunications

Utilities

Financials

Technology

Regional Weighting

DJW Regional Weighting

47.09%

28.95%

21.08%

2.88%

DJIM Sustain Regional Weighting

38.03%

53.52%

8.44% 0.00%

Americas

Europe(ex.S.Africa)

Asia/Pacific

Others

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

DJIM Sust ain Price Ret urn (USD)

DJIM World Price Ret urn (USD)

DJ World Price Ret urn (USD)

Building IF Causeways

-IF is about Ethics

-Ethics espouse IF teachings

-Screens & Structures

+Codified

-Governance �Transparency

-Greening of IF

-Natural Cross Appeal