HSBC Islamic Fund to Drop Arms Firms After Revenue Links Exposed
The UK's largest Sharia-compliant fund will exclude companies with over 5 percent military revenue, a move prompted by recent reports on its holdings in arms and defense sectors.
By Hiroshi Ferrari ·
HSBC is set to remove major arms manufacturers from its Islamic Global Equity Index Fund following the revelation that the portfolio held significant positions in companies linked to the Israeli military. The UK's largest Sharia-compliant fund will now divest from businesses that derive more than 5 percent of their revenue from weaponry, a threshold consistent with standard Islamic finance screening guidelines.
The decision follows a report by Middle East Eye last month which disclosed that the fund purchased over $100 million in shares of companies connected to the Israeli defense sector during the first half of 2026. The fund, which began tracking the S&P Global 1200 Shariah Select Index in March, is passively managed and mirrors the benchmark's investments.
The S&P index updated its methodology in early November, with changes scheduled for implementation on 23 November. The new criteria explicitly exclude defense and weapons companies, military contractors, and related sectors. Companies with exposure to military contracting, nuclear and depleted uranium weapons, incendiaries, biological agents, and small arms will be screened out if their military revenue exceeds the 5 percent limit.
Among the major corporations expected to be excluded is RTX, the world's second-largest arms company. The fund purchased $35.7 million in RTX shares in the first half of 2026. Its subsidiary, Raytheon, has been described by the Campaign Against the Arms Trade as a significant supplier to the Israeli military and implicated in the war in Gaza.
Honeywell International is also slated for exclusion, with nearly 20 percent of its revenue coming from military weapons. The fund held $18.9 million in Honeywell shares. The US conglomerate designs sensors and guidance devices for weaponry, including an inertial measurement unit found in a missile that struck a school in Gaza in June 2024, killing at least 40 Palestinians.
Rolls-Royce, which produces engines for Merkava tanks and Israeli ships, will also be removed. The fund acquired $17.6 million in shares of the company, which derives over 12 percent of its revenue from military weapons. BAE Systems, Britain's largest arms manufacturer, is similarly set for exclusion after the fund purchased shares worth approximately $9.4 million.
The fund's overseers, a board of Islamic scholars, monitor the portfolio for compliance with Islamic finance principles. The new rules address a previous gap in the index, which did not previously exclude companies with exposure to most types of weaponry.
Data surveillance firm Palantir is also likely to be removed from the index. Middle East Eye reported that the fund purchased $38.3 million in Palantir shares, a company with links to Israeli operations in occupied Palestine. Although Palantir does not manufacture weapons, it partnered with the Israeli Ministry of Defence in January 2024 to deploy technology for war-related missions.
HSBC stated in late October that it would review its investment in Palantir, noting that it takes client concerns seriously and is assessing whether its approach still meets investor expectations. With military contracting now excluded from the benchmark, the removal of Palantir appears probable.
